The Rules Around Employee Benefits and Bonuses at Christmas

Date: November 28, 2025

Christmas is the time for giving and generosity, but are you up to date on the latest rules on employee benefits and bonuses ahead of the end of the year?

With many employers offering Christmas bonuses, festive gifts, or a seasonal staff party, it’s important to understand how HMRC treats these rewards. Some items are fully taxable, some can be claimed as tax-deductible business expenses, and others must be reported to HMRC.

Below is a guide from our our Manchester and London based accountancy experts to help you stay compliant at Christmas.

Are Christmas Bonuses Taxable?

In short, yes, most Christmas bonuses are taxable. HMRC views a Christmas bonus in the same way as ordinary employment income, meaning it is usually subject to:

Income Tax
Employee National Insurance
Employer National Insurance

This applies whether your festive bonus is a one-off cash payment, a performance reward wrapped up as a Christmas gesture, or a digital voucher.

Cash bonuses must always be processed through payroll.
Non-cash bonuses, including gift cards and vouchers that can be exchanged for cash, are also taxable unless they fall within a specific exemption.

If in doubt, assume the bonus needs to go through payroll unless it qualifies under the HMRC trivial benefit rules.

Is a Work Christmas Party Tax-Deductible?

A Christmas party can be a tax-deductible staff event if it meets HMRC’s annual function criteria. When the rules are met, employees are not taxed on attending, and the company can usually claim the cost as an allowable business expense.

To qualify for the exemption, the event must be:

An annual function (such as a Christmas or summer party)
Open to all employees
No more than £150 per head

If the total cost exceeds £150 per head, even slightly, the full amount becomes taxable, not just the excess. If there is more than one event a year, £150 is the total amount for all events in a tax year. where an event takes the amount over £150 annually, this event would not qualify at all.

How is the £150 per head calculated?

HMRC expects the cost to include everything tied to the event:

Food, drink and entertainment
Venue hire
Transport or overnight accommodation (if provided)
Any associated expenses

You then divide the total cost by the number of attendees, including guests. This ensures a fair and compliant calculation.

Can you expense Christmas gifts for employees?

You can often expense Christmas gifts as part of staff welfare, but the tax treatment depends on:

The value of the gift
Whether it’s linked to performance
Whether it qualifies for the trivial benefit exemption

Modest, one-off festive items can sometimes be treated as trivial benefits, but cash or cash-convertible vouchers never qualify.

Employer Guidance on Christmas Bonuses

Cash Bonuses

Cash bonuses should be treated exactly like standard wages. This means:

PAYE must be applied
Employee and employer National Insurance contributions are due
The payment must be reported through RTI as part of the payroll process

This ensures the bonus is taxed correctly and avoids unexpected liabilities later on.

Non-Cash Bonuses (Gifts & Vouchers) as Employee Benefits

Common non-cash Christmas rewards include:

Gift vouchers
Hampers
Wine or chocolates
Branded gifts
Experience tokens

Some of these may fall under the HMRC trivial benefit rules, but only when they meet strict criteria. Any voucher that can be exchanged for cash is always taxable.

Employee Benefits & Trivial Benefit Exemption

Employers can use HMRC’s trivial benefit exemption to provide small, occasional gifts to staff tax-free.

What HMRC Classifies as a Trivial Benefit

To be treated as a trivial benefit, it must meet all of the following:

Cost £50 or less, including VAT
Not be cash or a cash-convertible voucher
Not a reward for performance or part of salary
Not something the employee is contractually entitled to receive

This exemption is particularly helpful for small, thoughtful seasonal gifts such as a bottle of wine or a festive treat.

Examples of Trivial Benefits

A Christmas hamper under £50
A box of chocolates delivered to staff homes
A seasonal plant or modest desk gift
A gift card that cannot be exchanged for cash (within the rules)

Non-Qualifying Employee Benefits

The following do not qualify as trivial benefits:

Cash or cash-convertible vouchers
Any Christmas gift costing more than £50
A performance bonus dressed as a festive gesture
Benefits that staff are contractually entitled to

Trivial Benefits for Limited Company Directors

Directors of close companies have additional limits:

A cap of £300 per tax year
Still subject to the £50 per-item limit
Cannot be linked to performance

This is often used for occasional director gifts, but must be monitored carefully.

Which Employee Benefits Must Be Reported to HMRC?

Certain Christmas employee benefits must still be reported to HMRC, either through payroll or alternatively on a P11D. These include:

Taxable vouchers
Non-cash gifts over £50
Christmas events that do not meet the £150 per-head rule
Personal expenses met by the employer
Staff benefits that fall outside HMRC exemptions

Accurate reporting helps your business remain compliant and also avoids penalties.

If you need with annual accounts, our Manchester and London based accountants can help you no matter where you are based in the UK.

Record-Keeping and Documentation for Employee Benefits

Good record-keeping is essential when providing festive rewards. Employers should keep:

Receipts and invoices for all staff gifts and events
Notes showing how the cost per head was calculated for Christmas parties
Payroll records for bonuses
Documentation of which staff received each benefit
Copies of RTI submissions and P11D forms (where applicable)

Keeping clear records protects the business should HMRC request evidence and also ensures a smooth year-end process.

Alexander & Co – Expert Tax Advice

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