The Tax Implications of Christmas Bonuses and Gifts

As the festive season approaches, many business owners like to thank their team (and sometimes their clients) with bonuses, gifts, or celebrations. It’s a great way to boost morale and show appreciation, but it’s also important to understand how these rewards are treated for tax purposes.

In this blog, we’ll break down the tax implications of Christmas bonuses and gifts, so you can reward generously without any unexpected surprises from HMRC.

How are Christmas Bonuses Taxed?

Cash bonuses paid to employees are treated as earnings, just like regular wages.

This means they are subject to:

• Income Tax

• National Insurance Contributions (NICs) (both employee and employer)

• PAYE reporting

Bonuses must be processed through payroll and reported to HMRC in real time. From the employee’s perspective, a £1,000 bonus won’t result in £1,000 landing in their bank account once tax and NICs are deducted.

For the business, the cost of the bonus is allowable for Corporation Tax, meaning it can reduce your taxable profits for that tax year.

How are Non-Cash Gifts to Employees Taxed?

Not all gifts are treated the same way as cash bonuses.

Trivial Benefits

HMRC allows certain small gifts to employees to be tax-free under the trivial benefits rules. To qualify:

• The gift must cost £50 or less per employee

• It must not be cash or a cash voucher

• It must not be part of a contractual obligation

• It must not be given as a reward for work performance

Examples include gift cards, bottles of wine, or festive hampers.

For directors of close companies (typically owner-managed businesses), trivial benefits are capped at £300 per tax year per director.

Staff Parties and Christmas Events

Staff social events are another popular way to celebrate at the end of the year.

HMRC allows an annual exemption of £150 per head (including VAT) for staff parties or events. This includes:

• Food and drink

• Entertainment

• Transport and accommodation, if part of the event

The £150 limit applies to the total cost per person, not per event. If the cost exceeds £150, the entire amount becomes taxable, not just the excess.

These events must be open to all employees to qualify for the exemption.

Gifts to Clients and Customers

Festive gifts for clients are treated differently.

• Gifts costing £50 or less per client may be allowable for tax

• Gifts must not include food, drink, tobacco, or vouchers

• The gift must carry clear business branding (such as a logo)

For example, a branded diary or desk item may qualify, whereas a bottle of champagne generally would not be tax-deductible.

Planning Ahead Pays Off

According to HMRC data, thousands of employers face penalties each year due to payroll reporting errors, often around bonuses and benefits. Planning festive rewards in advance helps you to budget accurately, process payroll correctly and avoid unexpected tax bills or P11D issues.

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Whether you’re planning bonuses, gifts, or staff celebrations, understanding the tax implications upfront can save time, money, and stress.

At BCT Accountants, we help small and medium-sized businesses structure rewards efficiently, stay compliant, and make the most of available allowances.

If you’d like advice before finalising your festive plans, get in touch today with Catherine on 01423 431 889 or email catherine@bctaccountants.co.uk for your FREE consultation call.

Please note: all stats are accurate for the 2025/26 tax year.