There are four ways to give an employee something without a tax charge: trivial benefits up to £50, long service awards at £50 per year of service after 20 years, an annual function at £150 a head, and third party gifts up to £250 from one donor. Cash and cash vouchers are excluded from all of them, always.
Trivial benefits — £50
Section 323A ITEPA 2003. Four conditions, all of which must be met:
- The cost of providing the benefit does not exceed £50 — or the average cost per employee where it is provided to a group;
- The benefit is not cash or a cash voucher;
- The employee is not entitled to it as part of any contractual obligation, including under salary sacrifice arrangements;
- It is not provided in recognition of particular services performed as part of their employment duties, or in anticipation of such services.
Where all four are met there is no tax, no National Insurance and nothing to report. A trivial benefit provided under salary sacrifice loses the exemption and goes on a P11D.
For close companies — run by five or fewer shareholders — there is an annual cap. Section 323B sets the annual exempt amount at £300, and it applies to a director or other office holder and to members of their family or household. The available exempt amount is £300 less benefits already provided earlier in the tax year. Where a benefit goes to a non-employee family member, the cost is apportioned among qualifying persons in that household. The cap also reaches former employees who were directors when the employer was a close company.
One point worth correcting because it circulates widely: nothing disqualifies a trivial benefit simply because it recurs annually. A £40 gift several times a year is fine, provided each one independently meets the conditions. What recurrence can do is indirect — a benefit provided so predictably that staff treat it as an entitlement risks becoming contractual by custom, and that is one of the four conditions.
Long service awards — £50 per year
Section 323. The permitted maximum is £50 for each year of service in respect of which the award is made, and the award must mark a period of not less than 20 years service with the same employer.
So a 20-year award has a permitted maximum of £1,000, a 25-year award £1,250. Only the excess over the maximum is chargeable.
Two restrictions. The award must be in a form other than money — tangible moveable property, shares in the employer's company or group, or other benefits. It cannot be a payment, cash voucher, credit token, securities, non-qualifying shares or interests in securities. And there is a 10-year rule: a later award does not qualify if another award marking a period of service with the same employer was made in the ten years before it.
The £50 figure has been in place for over twenty years — it was £20 for awards made on or before 12 June 2003.
The annual function — £150 a head
Section 264. The exemption applies to an annual party or similar annual function provided for employees and available to them generally, or generally to those at a particular location, where the cost per head does not exceed £150.
Cost per head is the total expenses of the event including incidental transport and accommodation and including VAT, divided by the number of attendees — all attendees, not just employees. Where there are two or more annual functions, the employer may designate one or more as exempt provided the cost per head of the exempt events does not exceed £150 in aggregate.
The critical point, and the one that costs employers most: the £150 is not an allowance. Exceed it and the full cost is taxable, not just the excess. A £160-a-head Christmas party creates a benefit of £160 per attendee, not £10.
The exemption applies to recurring annual events. One-off events — a contract win, an anniversary celebration — do not qualify. Virtual functions can qualify.
Third party gifts — £250
Section 324 exempts gifts from someone other than the employer, subject to five conditions: the gift is not provided by the employer or a connected person; neither procured it; it is not in recognition of or anticipation of particular services; it is not cash; and the total cost to the donor of all eligible gifts in respect of that employee during the tax year does not exceed £250.
The £250 is per tax year per donor, and includes VAT borne by the donor. As with the annual function, exceeding it taxes the whole amount rather than the excess.
This is the exemption that covers supplier hampers and client gifts at Christmas, and the per-donor basis is what makes it workable — an employee can receive gifts from several suppliers without aggregating them.
Cash is always earnings
Worth stating once, plainly. Cash and cash vouchers are excluded from every one of these exemptions. A cash bonus, a gift of money, a voucher exchangeable for cash — all are earnings, taxable through PAYE with National Insurance. There is no small-sum concession.
Non-cash vouchers are a different matter and can fall within the trivial benefits exemption, provided they are not exchangeable for cash and the other conditions are met.
Using them properly
Three practical points. Keep the exemptions distinct in the records, because they have separate conditions and separate limits — running a £60-a-head summer event through trivial benefits does not work, and the £50 test alone defeats it.
Watch the close company cap if you are an owner-managed business. £300 across the year for a director and their household is reached quickly by a few gifts, and the family members count.
And model the annual function before booking it rather than after. The cliff edge at £150 is the single most expensive feature in this area, and it is entirely avoidable with a spreadsheet.
These figures are the current ones as at September 2026 and none has changed for 2026/27. Our guide to staff entertainment covers the annual function and the trivial benefits interaction in more detail, and how bonuses are taxed deals with the cash alternative.
Acumon advises employers on benefits and expenses through employment tax and payroll management work, with payroll audit where P11D reporting needs checking. If you are planning a Christmas function, the cost per head including VAT and transport is the number to settle before you commit.