Your guide to employee gifts & tax implications

Employee gifting has become a key part of recognition strategies, and why not? 

Firstly, everyone loves a freebie. Secondly, it’s a clear-cut way to say “you’re appreciated”, and - as we’re often told - actions speak louder than words. But although it’s a simple way to recognise your teams, there are some tricky things to be aware of.

If you’re introducing gifting to your organisation, you may have been asked “can you write off employee gifts?” or “are gifts for employees tax deductible?”.

But there’s not necessarily a yes or no answer. In the UK, tax treatment depends on the gift’s value, how it’s structured, and if it meets HMRC’s criteria. If that makes you nervous, that’s understandable… get it wrong, and your well-meaning attempt to foster employee engagement could trigger PAYE, National Insurance or unexpected reporting requirements.

That’s what this guide is for: to walk you through what counts as a tax-deductible business expense, and how to give employees gifts without the stress. We’ve got you. 

Are employee gifts tax deductible? The short answer

A lot of employee gifts can be treated as a business expense, and deductible against profit - for example, this is generally the case if you send a gift to boost morale, or recognise an occasion. But whether a gift is a gift is tax deductible for the employer as well as being tax-free for the employee? That’s a different question.

If you’re asking “are gifts to employees tax deductible?”, the answer is yes - if you meet business-expense criteria, and the rules for exemption are met on the employees’ side. If not, the employer can still deduct the cost, but your staff will have a taxable benefit in kind.

The key to most employee gifts: the trivial benefits rule 

When it comes to smaller gifts, the “trivial benefits” exemption will be relevant. According to HMRC, a gift (or benefit) is exempt from National Insurance if all of the following rules are met:

• It costs £50 or less (including VAT) to provide
• It is not cash or a cash equivalent
• It is not a reward for work or performance (i.e., not linked to hitting targets)
• It is not part of the employee’s contract, and not provided as salary sacrifice

If any of those points fails, then the entire benefit is taxable - so be careful! 

For directors of “close companies” (typically companies with 5 or fewer shareholders who are also directors), the rules tighten: trivial benefits for them (or their family/households) must still each be ≤ £50, and the total in a tax year cannot exceed £300.

The trivial benefits rule covers a lot of scenarios. Christmas gifts, small gift cards, a bottle of wine or box of brownies? You’re generally covered.

The rules on types of gifts…

Are gift cards for employees taxable?

Another common question we see is “do gift cards given to employees need to be taxed?”. Here’s what you need to know:

• Gift cards for a specific retailer (and not convertible to cash) can qualify as trivial benefits - if they cost £50 or less and meet the other rules
• Gift cards that are cash vouchers (or look like money) don’t qualify for the trivial benefits exemption - usually being treated as earnings and therefore taxable
• If a gift card is above £50, or linked to performance or salary sacrifice, then it is taxable.

Gift cards vs. physical gifts vs. experiences

Want to treat your teams? Great! Just be aware that different formats carry different tax-risks:

• Physical gifts: usually safe if under £50 and given spontaneously
• Gift cards: usually safe if they’re retailer-specific, non-cash-convertible, not linked to performance, and under £50 - but be careful
• Cash or cash-equivalent gifts: always taxable for the employee
• Large experiences, trips, high-value gifts: usually taxable unless they’re structured carefully

You can generally deduct the cost of the gift (as staff costs) as long as it’s completely, exclusively for business. But if the employee faces tax on the gift, there will be reporting burdens.

Can a company gift high-value items like cars, cash, or large bonuses?

We won’t say it comes up a lot, but some people do ask “can a company gift a car to an employee?” or “can a company gift money to an employee?”. And you can, of course, but your (still lucky!) employee will face tax and National Insurance, and the company has reporting and Class 1A NI obligations. These are treated as benefits in kind (BiK).

• Gifting cash (or anything convertible to cash) is normally treated as earnings and taxed through PAYE. So “gift money to an employee” essentially means giving them a bonus
• Gifting a company car or other high-value asset also triggers BiK rules (depending on value, CO₂ emissions and other factors)

You could deduct the cost as a staff cost, but it’s also crucial to recognise the tax burden on the employee (which could affect their morale, engagement, or net value). If you’re doing it as a reward, factor in the “tax cost” to the recipient.

Also bear in mind: these types of gifts do not fall under the trivial benefit exemption, so you’ll need to handle them via payroll/P11D and apply Class 1A NIC as appropriate.

The rules on different reasons for gifts…

Christmas gifts: what’s deductible and what’s taxable?

They’re not the most festive of questions: “are Christmas gifts for employees tax deductible?”, “are employee Christmas gifts tax deductible?” and “are Christmas gift cards to employees taxable?”. But despite the twinkling lights outside, rules still apply - so people ask for a reason.

When it comes to Christmas gifts to employees:

• If the gift qualifies as a trivial benefit (see above) then it’s tax-free for the employee and doesn’t need to be reported
• If the gift fails the criteria, then it’s treated as a taxable benefit in kind - and has to be reported on form P11D (or through payroll) and Class 1A NI paid by the employer
• Make sure you keep the gift separate from the “annual event” exemption for staff parties (which has a separate £150 per head rule)

Here are some examples:

• A £25 buttery bottle of wine? Trivial and exempt
• A swanky £70 hamper? Taxable
• A £40 prepaid card for general use? Always taxable

When it comes to your Xmas gifting, don’t stress. Just plan in advance, make sure you don’t give cash gifts, don’t link the gifts to work performance, and - don’t forget this! - document everything properly. 

Are leaving gifts for employees taxable in the UK?

Someone’s handed in their notice. And it’s one of those where everyone’s a little sad it’s happening, but it’s an exciting next step… etc. etc. etc.

So, a gift feels warranted.

When someone moves on from an organisation, it’s pretty common to give them a leaving present. Sometimes that’s handled by their colleagues themselves, but if not then it’s worth considering the tax implications.

If the leaving gift qualifies as a trivial benefit, it can be tax-free. But for bigger, blow-out gifts, they may not meet trivial benefit criteria.

Best practice? Keep leaving gifts low-key, let other employees take the lead, or structure them so they clearly sit outside taxable reward frameworks. Document the amount, reason, and make sure it isn't a de facto part of salary.

How to stay compliant: a checklist for HR & leadership teams

Here’s a quick checklist to ensure your gifting programme stays tax-compliant:

1. Check the value: make sure each gift is under £50 (including VAT)
    
2. Avoid cash: swerve cash or cash-convertible vouchers to get trivial benefit exemption
    
3. Don’t make it contractual: AKA not part of an employment contract or offered routinely
    
4. Don’t link to performance: AKA linked to meeting targets or reward for service
    
5. Check salary sacrifice: if an employee gives up salary for benefit, then the trivial exemption is lost
    
6. Remember the director/close company cap: for directors of close companies, total trivial benefits have to be under £300 per tax year
    
7. Handle group gifts/events: for shared gifts or events, calculate the cost per head and make sure it still falls under the limit
    
8. Document everything: record the date, gift, cost, recipient, reason and keep your receipts
    
9. Payroll/P11D best practice: if a gift is taxable, make sure it’s processed via payroll or reported on P11D and Class 1A NI paid
    
10. Communicate clearly: make sure employees understand when a  “gift” isn’t taxed or if there’s a tax deduction - so be transparent about the net value

Follow this checklist, and you can build a risk-proof gifting strategy by avoiding unexpected tax liabilities or unhappy employees..

FAQs

Are gifts for employees tax deductible? Yes, at the employer level, many gifts can be deducted as staff costs. But the employee side must satisfy exemption criteria for the gift to be tax-free.

Are gifts to employees deductible? Employers can deduct the cost; employees may face tax if exemption conditions are breached.

Are gifts to employees tax deductible? Similar to above: gifts can be deductible for the employer; tax depends on the employee side.

Do gift cards given to employees need to be taxed? If the gift card is cash‐convertible or linked to performance or > £50, then yes, taxable. If it’s a non-cash retailer voucher, under £50, and not linked to performance, it may be tax-free.

Is a gift to an employee tax deductible? From the employer perspective: yes. From an employee perspective: depends on whether it is a taxable benefit.

Are Christmas gift cards to employees taxable? They can be tax-free if they meet trivial benefit rules. If not, they’re taxable.

Are Christmas gifts for employees tax deductible? Yes for employers; tax for employees depends as above.

Are gift vouchers given to employees taxable? They can be taxable if cash-convertible or > £50 or performance-linked.

Are leaving gifts for employees taxable UK? Potentially yes; could be tax-free if trivial and meets criteria, but often not.

Can a company gift a car to an employee? Yes but treated as a taxable benefit, subject to BiK rules.

Can a company gift money to an employee? Essentially yes (it counts as a bonus), but taxed as earnings and subject to PAYE/NIC.

Our takeaway: try Huggg for clear-cut employee gifting

Employee gifting is a powerful tool, when it comes to recognition. And it doesn’t have to be hard work. Although there are risks to getting it wrong, it can be straightforward to get it right - whether it’s by keeping gifts under that £50 mark, or keeping close track of bigger gifts so you can report them properly.

Huggg helps you on both levels. You can set budgets and let employees choose their own gifts (with a huge number of items under £50, by the way!). You can also see reports on what you have sent staff, so it’s easy to keep on top of things. 

With Huggg, you can combine thoughtful gifting and clear documentation, and find options for every budget. Basically, Huggg’s here to take one thing off your list: you’re welcome! 

Disclaimer: We are providing this information for guidance purposes only and that the reader should not treat this as tax advice.  They should consult their own tax advisers for formal tax advice.