Christmas Gifts, Bonuses and Staff Parties: What’s Tax-Free in 2025?
As Christmas approaches, many business owners are rightly thinking about rewarding staff, thanking clients, and closing out the year on a positive note.
But when it comes to gifts, bonuses and staff celebrations, the tax rules are often misunderstood — and getting them wrong can lead to unexpected PAYE, National Insurance, or Benefit-in-Kind charges in the new year.
Here’s a clear guide to what’s tax-free, what isn’t, and what employers should keep in mind this Christmas.
Staff Christmas Parties — The £150 Rule
The good news is that staff Christmas parties can still be tax-free — provided they stay within the rules.
To qualify for relief:
The total cost must not exceed £150 per person (including VAT).
The event must be open to all employees (or all at a particular location).
The £150 limit is an annual limit, not per event.
- If you hold multiple events during the year (summer party + Christmas), the total combined cost must remain below £150 per head.
- If the £150 threshold is exceeded — even by £1 — the entire amount becomes taxable, not just the excess.
It’s worth reviewing costs carefully before committing.
Gifts to Employees: What’s Allowed?
Gifts to employees may be taxable unless they qualify as trivial benefits.
A gift can be treated as a trivial benefit if:
It costs £50 or less per employee
It is not cash or a cash voucher
It is not linked to performance or contractual entitlement’
Common examples include:
- Gift hampers
- Bottles of wine
- Small retail gift cards (with limits)
For company directors, there’s also an annual cap of £300 in trivial benefits.
Anything above these limits may need to be reported via payroll or a P11D.
Gifts to Clients: What’s Tax-Deductible?
Client gifting is treated differently.
For a gift to be tax-deductible:
It must cost £50 or less per recipient
It must not be food, alcohol, or tobacco
It must carry visible branding (e.g. logo or business name)
That means:
- Wine, chocolates and hampers are not deductible
- Branded merchandise generally is
Even where gifts aren’t deductible, they can still be worthwhile from a relationship perspective — just don’t expect tax relief.
Bonuses vs Dividends — What’s Better at Christmas?
Many owner-managed businesses consider paying bonuses or dividends at Christmas — but the tax treatment differs significantly.
Bonuses:
Subject to PAYE and National Insurance
Employer NIC applies
Must be processed through payroll
Dividends:
Paid from post-tax profits
Not deductible for the company
Still subject to dividend tax (which is rising from April 2026)
For directors, the right approach depends on:
overall income level
tax bands
cashflow
future dividend planning
This is an area where personalised advice can make a real difference.
Payroll and Reporting Considerations
Don’t forget the admin behind the generosity.
Depending on what you provide, you may need to:
Process items through payroll
Include benefits on a P11D
Set up a PAYE Settlement Agreement (PSA) if you want to settle tax on employees’ behalf
Getting this right now avoids awkward corrections in the new year.
Plan Now — Enjoy Later
Christmas spend is a great way to reward hard work and build goodwill — but understanding the tax rules ensures it stays a positive gesture rather than an expensive mistake.
At Exchange Accountants, we help businesses plan staff rewards and owner payments in a tax-efficient way — ensuring good intentions don’t come with surprises in January.
If you’d like to review your Christmas plans or discuss bonuses, dividends or payroll reporting, get in touch with our team.
📞 028 9263 4135
📧 info@exchangeaccountants.com
🌐 www.exchangeaccountants.com
Let’s Grow Together.
