Gifting vs Tax: How to Stay Generous Without Paying the Price

The rules in plain English

Trivial Benefits – What Counts and What Doesn’t
A trivial benefit is HMRC’s way of saying “small, non-cash perks that don’t need to be taxed.” But there are rules:

• It can’t be provided in recognition of work done or as part of a contract.

• Think bottles of wine, flowers, birthday cakes, or staff lunches.

• The cost must be £50 or less per person.

• This limit is measured including VAT if you can’t reclaim it.

• It can’t be cash or a voucher that can be swapped for cash.

Employees vs Directors:

• Employees: No overall annual limit. As long as each gift meets the £50 test, you’re good.

• Directors of close companies (typically SMEs where five or fewer shareholders control the business): Capped at £300 per tax year total trivial benefits per director (and family members).

Staff Parties and Socials

HMRC allows £150 per head per year for staff parties. Go over it, even by £1, and the whole amount becomes taxable.

• The exemption covers employees and their guests (e.g. partners). The cost is calculated on a per-head basis, so a staff member and their partner together count as two people with two allowances (£300 combined).

PSA (PAYE Settlement Agreement)

Sometimes you want to give perks or gifts that don’t fit neatly into the trivial benefit or staff entertaining exemptions. A PSA allows the business to settle the tax and NI on behalf of employees.

• It covers things like bigger gifts, one-off treats, or mixed events that don’t qualify for other reliefs.

• VAT on staff entertaining is reclaimable, but only for employees. If clients or suppliers attend, their share must be stripped out.

• Good for morale, but remember: it costs the company extra, since you’re grossing up the tax.

• Use it strategically, not as a blanket solution.

Clients and Suppliers

Rule of thumb: only branded, low-value promotional items pass both the tax and VAT test.

• Branded promotional gifts under £50 (pens, mugs, diaries) are deductible for corporation tax, and VAT is reclaimable if they’re genuine promotional giveaways.

• Unbranded gifts, alcohol, hampers, or entertainment? No tax deduction, no VAT reclaim.

Vouchers and Gift Cards

HMRC is crystal clear: cash or cash-redeemable vouchers never qualify as trivial benefits.

• Broad-use cards (like Visa prepaid or Amazon vouchers) are treated as cash, so are fully taxable.

• A restricted-use voucher (e.g. only usable at a single retailer) might qualify if it’s under £50 and ticks the trivial benefit rules.

• There is no government scheme that overrides this. Vouchers are always a grey area, so proceed with caution.

Where Businesses Go Wrong

• Mixing up trivial benefits with taxable ones — e.g. assuming all gift cards are fine.

• Forgetting the director cap — leaving small companies with surprise tax bills.

• Over-spending on parties — losing the whole exemption.

• Not accounting for partners at parties — underestimating the total cost per head.

• Trying to reclaim VAT on client entertainment — which HMRC blocks.

How to Play It Smart

• Plan ahead: budget gifts with tax rules in mind.

• Stick to £50 trivial benefits for employees; track director totals.

• Use the £150 per head allowance carefully, including partners, and watch the totals.

• Consider a PSA for awkward or higher-value perks.

• Keep client gifting simple: branded, under £50, and promotional.

• Don’t assume vouchers are trivial. Always check first.

The Bottom Line

Generosity is good business. It boosts morale, strengthens relationships, and shows appreciation. But without tax-savvy planning, it can turn into an expensive mistake.

At Hawkhurst Accounting, we help SMEs gift wisely, save tax, and stay compliant. No jargon, no dull seminars, just clear advice that saves money.

Free Bonus Download: Corporate Gifting Flash Card

We’ve built a one-page cheat sheet that lays out the rules in a clear table:

• Employees vs Directors trivial benefits
• PSA coverage
• Staff parties (including partners)
• Client and supplier gifting rules
• VAT reclaim do’s and don’ts

Before you splash out this season, ask yourself: Is this gift tax-smart or just another donation to HMRC?

Book a call with us today, and we'll ensure your generosity reaches the right spot for both your people and your bottom line.

ROCK-SOLID FINANCE WITH A

REBEL SPIRIT

READY TO DO THINGS

Reach out to Hawkhurst Accounting for expert bookkeeping, compliance, and advisory services tailored for you.

Just fill out the form below, and we’ll show you how accounting can feel different.

Differently?