Written by Karolina Booth | 10th December 2025
The festive season presents a valuable opportunity to recognise your team’s contributions, but don’t let your goodwill result in a tax bill for your employee!
This blog explains the tax rules around festive generosity, whether you’re giving gifts or hosting celebrations, to ensure you understand HMRC‘s exemptions and remain compliant.
Understanding taxable benefits
In the same way that other benefits such as health insurance, need to be listed on employees’ P11D each year, to calculate the tax they need to pay on the value of it, Christmas parties and gifts will also be considered as taxable benefits. But there are clear exemptions that mean you can reward your employees without creating a tax headache for anyone. Understanding these rules means you can be generous while staying compliant.
1 – Exemptions for festive events
Throwing a Christmas party is a great way to celebrate your people. Christmas parties will generally be exempt from benefit in kind tax if they meet the following criteria:
- They are an annual event
- They are open to all employees
- The total cost is less than £150 per employee
Remember that this £150 limit is an annual spend, so if you throw a Christmas party and a Summer BBQ, you’ll need to consider the total cost of both events. If together they exceed the £150 allowance, you’ll need to report one of them as a taxable benefit. Don’t forget that any accommodation or transport provided, must also be included when calculating the cost.
Looking for tips about how to ensure your festive events remain safe and inclusive? Take a look at our blogs: Keeping your Christmas party enjoyable, inclusive and problem-free and 5 golden rules for employers throwing a Christmas party.
2 – “Trivial” and monetary gifts
Thoughtful, tangible gifts, such as seasonal hampers or wine, fall within HMRC’s ‘trivial benefits’ exemption, which means gifts under £50 won’t be taxed, and you can give multiple trivial gifts throughout the year. Gift vouchers also qualify, provided they can’t be exchanged for cash.
To be considered as trivial, gifts must be:
- £50 or less and unrelated to performance
- Not part of the employee’s contract – you can’t substitute vouchers for salary to reduce tax
Christmas bonuses or cash gifts are always treated as taxable earnings, with tax and National Insurance deducted as usual.
3 – Higher limits for directors and third-party gifts
For directors, the same principles apply but with a more generous annual cap of £300 for “trivial” benefits, rather than £50. Employees who receive a gift from suppliers, customers, or other third parties, can generally accept gifts up to £250 in value before becoming taxable.
4 – Exceeding exemptions
HMRC exemptions operate as thresholds, not allowances and therefore exceeding them by any amount means the whole amount becomes taxable. If you know that any of your festivities are going to incur a tax liability for your staff, you can instead cover this yourself as the employer, by agreeing a PAYE Settlement Agreement with HMRC, so that there is no cost to your teams.
5 – Building festive culture beyond financial investment
Recognition extends beyond monetary gestures. Workplace traditions like Secret Santa create moments of connection and shared experience across teams. When planning festive events and gifts, thoughtful employers consider dietary requirements, cultural and religious diversity, and the fact that not everyone drinks alcohol. Offering paid time for volunteering, or participating in charitable activities like Christmas Jumper Day demonstrates corporate values in action while enhancing employee engagement.
6 – Additional ways to reward your employees
Christmas parties and gifts are just a couple of ways to recognise and reward your staff. You could also consider complementary initiatives that demonstrate year-round commitment to employee wellbeing, including:
- Offering flexibility for school events or Christmas shopping
- Providing benefits such as discounted gym memberships, cycle to work schemes, or healthy food options
- Being mindful of workloads and offering appropriate support
- Recognising the financial pressures that often arise during the festive season and continue into January, when there is a rise in cost of living concerns
All of these things will impact your team’s reflection over the festive period on how they feel about working for you, as well as their feelings moving into 2026.
Summary
The festive season offers a valuable opportunity to show genuine appreciation for your team’s efforts. By understanding HMRC‘s exemptions and planning thoughtfully, you can:
- Keep parties tax-free with the £150 per head annual allowance (remember this covers all annual events combined)
- Give multiple “trivial” gifts throughout the year at £50 or less per gift
- Utilise the higher £300 annual cap for directors’ trivial benefits
- Allow employees to receive up to £250 in gifts from third parties before tax applies
- Avoid tax headaches – but remember that exceeding any exemption by even a penny makes the entire amount taxable
Getting festive recognition right strengthens employee loyalty while keeping you tax efficient. By understanding HMRC’s exemptions, you can be genuinely generous without creating unexpected costs for your team or your business—a win for everyone as you head into 2026.
Contact us
If you’d like support in designing a festive recognition approach that works for both your people and your budget, we’re here to help. Contact us at info@realityhr.co.uk or 01256 328428
About the author: Karolina Booth, HR Advisor
Karolina works closely with clients, seeing herself as an integral part of their organisations as well as a key player in the Reality HR team.
Known for her positive attitude and superb people skills, she has a background in recruitment for large private and public sector organisations along with a broad knowledge of day-to-day HR, employee engagement and performance management.
She has an instinctive ability to understand what clients need, reviewing processes and suggesting improvements to help them get the best out of their teams.