Buying something for the team at Christmas is straightforward until someone asks whether it's taxable, and then it stops being straightforward at all. The rule that decides this is called the trivial benefit exemption, and it exists so a small, occasional gift can stay off payroll altogether.

The conditions that all have to be met together

HMRC doesn't tax a gift to an employee just because it's small. It has to clear every one of a short set of conditions at the same time, and missing any single one means the exemption doesn't apply at all, so the whole gift becomes taxable.

• It can't be cash or a cash voucher.
• It can't be a reward for work done, or tied to performance.
• It has to stay under the per-occasion limit set for the current tax year.
• It can't be something the employee was contractually entitled to.

That limit changes with the Budget, which is why it's worth checking against HMRC's own manual page for the year in question.

The extra cap that applies if you're a director

Where the business is a close company, broadly one controlled by its own directors, a second limit sits on top of the per-occasion one: an annual cap covering everything a director is given across the year. In a firm of five to fifty people the person choosing the gifts is often the same person that cap applies to, so it's worth checking before assuming last year's arrangement still fits.

What happens if a gift doesn't qualify

A gift that fails one of the conditions, or that goes over either limit, stops being a trivial benefit and becomes a taxable benefit in kind instead. That means it's reported on a P11D, the form used to tell HMRC about benefits given outside payroll, and the business pays Class 1A National Insurance contributions on the value. None of that is a disaster, but it's cheaper to know in November than to find out in January.

Who this is written for

The person reading this has usually just been handed the job of sorting Christmas out, with no procurement department behind them and no note from whoever did it last time. Working out whether a gift sits inside the trivial benefit exemption, or whether it's heading for a P11D instead, is one part of that job. Working out the actual cost per person once delivery is added is the other, and the gift budget calculator handles that half.

Gifts to clients run on a separate set of rules, covered in the guidance on when client gifts are deductible. Where a figure on this site looks out of date, the contact page sets out what to send in so it can be checked.