As the winter holidays are approaching fast, some companies consider giving Christmas gifts to their employees. While a nice gesture, employers need to know the taxation rules.

If these rules are broken, the employees offered the gift will end up paying more tax. Surely, companies want to avoid giving more trouble than joy to their team members.

The golden rule to giving gifts to employees on behalf of the company is highlighted on HMRC website. In order to avoid more taxation, the value of the present should not exceed £50. Where multiple employees receive such gifts, the average value per present gets calculated. We will break this down further on for you.

How to offer presents and not extra taxes

Besides the £50 cap, also the following conditions apply:

• the benefit (present) should not be presented as cash or cash voucher;
• the gift offered does not coincide with a benefit specified in the contract;
• the benefit does not represent recognition of performance (thus replacing a pay rise);
• in case the company is defined as close, and the employer receiving the benefit is a director, office holder or member of their family, the benefit cap rises to £300.

Where any of the above rules does not apply, then the gift will suffer taxation. It’s important to understand them, to avoid complicating things for your employees instead of showing appreciation.

A bottle of wine or a Christmas meal to say thank you

Looking at the rules, questions might arise. Let us go through couple of the most common examples. Quite possibly, the second rule specified above leaves a few people wondering. Still, things are less complicated than they seem.

Some contracts specify the company will pay the mobile phone contract for the employee. Then they cannot offer that mobile phone contract as a Christmas gift.

Also, let’s clarify another aspect. As an employer, you can offer as many gifts of maximum £50 value each to as many members of your team as you see fit. HMRC will not consider the total cost, but calculate the average per employee.

On their website, they give examples to help you decide best. Give a bottle of wine to as many of your employees as you want. Offer a Christmas meal. If it stays within the £50 bracket per person, your team members will not have to pay taxes for such gifts.

Understanding these rules helps you offer season related presents with confidence.