Short answer: a company can pay for almost anything, but it is only tax free if a specific exemption applies. Otherwise someone is taxed on it, usually the employee or director through a benefit in kind. Small gifts under the trivial benefits rules, annual staff parties and a handful of other perks are exempt. Cash, personal bills and most gym memberships are not. The figures below are for the 2026/27 tax year.
The two questions to ask
Social media often claims that your company can pay for anything. That is half true. Every payment raises two separate questions:
- Can the company deduct the cost? Business costs must be incurred wholly and exclusively for the business. Staff costs, including benefits, are generally deductible.
- Is anyone taxed on it personally? If an employee or director gets a personal benefit and no exemption applies, it is a taxable benefit in kind. The person pays Income Tax on the value, and the company pays Class 1A National Insurance at 15%. Personal spending that is not treated as a benefit can instead become a director's loan.
So the real question is not whether the company can pay, but who ends up paying the tax. For most perks the answer is tax efficient, not tax free.
Small gifts: the trivial benefits exemption
You do not pay tax or National Insurance on a gift to an employee, and do not need to report it, if all of these apply:
- It cost you £50 or less to provide, including VAT.
- It is not cash or a cash voucher.
- It is not a reward for work or performance.
- It is not part of the employee's contract.
If a gift costs even £1 over the limit, the whole amount is taxable, not just the excess. Gifts provided through salary sacrifice are not exempt. Non-cash gifts such as a hamper, flowers or a store gift card for a birthday or Christmas can qualify.
Directors of small companies
Directors count as employees, but if your company is a close company (run by 5 or fewer shareholders, which includes most small companies), a director and their family or household cannot receive more than £300 of trivial benefits in a tax year. In practice, that is six gifts of £50. Keep a log, because the cap applies to the total.
Other benefits that are exempt
- Annual party or function: up to £150 per head for the year, if open to all staff. It is all or nothing: if the cost goes over £150, the whole amount is taxable.
- One mobile phone per employee, provided by the company. See can I put my phone through the business?
- Health screening and medical check-ups: one of each per tax year. Treatment is not covered.
- Eye tests for employees who use screens, where required by health and safety rules.
- Long service awards: non-cash awards for 20 years or more of service, worth less than £50 per year of service.
- Pensions advice: up to £500 per employee in a year.
- Homeworking payments: up to £6 a week without evidence.
Conditions apply to each exemption, so check them before relying on one.
What about the gym?
An ordinary gym membership paid by the company is a taxable benefit in kind. The company reports it on a P11D or through payroll, you pay Income Tax on its value and the company pays 15% Class 1A National Insurance.
| Gym membership paid by the company | Extra tax on £600 |
|---|---|
| Employee pays Income Tax at 20% | £120 |
| Employee pays Income Tax at 40% | £240 |
| Company pays Class 1A NI at 15% | £90 |
The exception is a gym the company provides itself, such as an on-site facility available to all staff. Paying for membership of a public gym does not qualify, and nor does paying for classes at a workplace gym.
Gifts to clients and suppliers
Business entertainment is not an allowable cost, but gifts can be, in limited cases. A gift to a client is allowable if all of these apply:
- It carries a conspicuous advertisement for your business, on the gift itself and not only on the wrapping. Diaries, pens and mouse mats are common examples.
- It is not food, drink, tobacco, or a voucher exchangeable for goods.
- It costs £50 or less per recipient in the year, including any other such gifts to the same person. Over £50, the whole amount is disallowed.
A hamper, a bottle of wine or a gift card for a client is therefore not allowable, however thoughtful. Samples of your own products given away as advertising are generally allowable.
What is never tax free
- Cash, and vouchers that convert to cash.
- Gifts that are a reward for work or performance. These are really bonuses and go through payroll.
- Personal bills paid from the company account, such as holidays, groceries or family gifts. For a director these are usually a director's loan or taxable benefit.
- Gifts to clients that fail the advertising, type or value tests.
VAT on gifts
If you are VAT registered, you can usually reclaim VAT on business purchases. For gifts of goods, once the total cost to the same person goes over £50 in 12 months, you must account for VAT on the gifts. Samples are an exception. Check the position before reclaiming VAT on larger gifts.
Worked examples
| Scenario | Result |
|---|---|
| £40 branded diary for a client | Allowable for the company. No tax for the client. |
| £45 hamper for a client | Not allowable. It is food and drink. |
| £45 non-cash gift card for an employee at Christmas | Exempt as a trivial benefit, if the other conditions are met. |
| £60 gift for an employee | The whole £60 is taxable, because it is over £50. |
| Seven £50 gifts to the sole director in a year (£350) | Over the £300 cap, so the excess benefits are taxable. |
| £600 gym membership for a director | Taxable benefit in kind, with Class 1A NI for the company. |
Records and reporting
Keep a log of who received what, when and at what cost, plus receipts. Exempt benefits do not need reporting. Taxable benefits go on a P11D, normally due by 6 July after the tax year, with Class 1A National Insurance paid by 22 July. Many small companies report benefits through payroll instead.
Frequently asked questions
Can I give myself a Christmas gift from my company?
Yes, up to £50 as a trivial benefit if it is not cash, and within the £300 yearly cap for close company directors.
Can I give employees a Christmas bonus tax free?
No. A bonus is cash, so it is taxed as pay through payroll. A small non-cash gift under £50 can be exempt.
Is it better to take it as salary or dividends instead?
Sometimes a benefit costs less tax than extracting the same value as pay, but it depends on the benefit and your tax rate. Our dividend tax calculator and sole trader vs limited company calculator help you compare.
Need help with benefits and director pay?
We handle accounts, payroll and tax for a fixed monthly fee. See our fixed price accountancy packages or get in touch. If you are a sole trader, read our guide on gifts and perks for sole traders.
