11 December 2019
In the season of goodwill, employers might like to show their appreciation for their employees, or thank their customers for their business, with a festive gift. Here’s our guide to tax exemptions on gifting for employees and customers.
Tax-free gifts for staff
As long as the employer meets the following conditions as set out in HMRC’s Employment Income Manual, there will be no tax charge when:
- The cost of the gift is no more than £50
- The gift is not cash or a cash voucher
- The employee is not entitled to the gift as part of any contractual obligation
- The gift is not a reward for services
There is no limit on the number of tax-free gifts of £50 or less that employees can receive throughout the year, unless your employee is a director. In this case, the exemption is capped at a total cost of £300 each tax year.
Also, it’s worth noting that, if the gift costs more than £50, the full amount is taxable, not just the excess over £50.
Tax-deductible gifts for customers and suppliers
Gifts for customers are treated slightly differently to employee gifts, as they fall into the category of entertainment. This means that they would not be tax-deductible.
However, your gift could be considered tax-deductible if it costs less than £50 per person and features a conspicuous advert for your business. This could be a branded gift like umbrellas, mugs or stationery; it can’t be food, drink or tobacco.
Learn more in HMRC’s Business Income Manual here.
Tax-free gifting rule of thumb
Whether you’re gifting to customers, suppliers or staff this Christmas time, remember to keep the costs under the £50 limit per person, and plan the type of gift in advance in accordance with HMRC’s rules.
Find out more about tax allowances and reliefs your business might be entitled to with our specialist tax planning services.