With Christmas just around the corner, many businesses will be getting ready for the festive season. Whether you’re organising the annual Christmas party, treating your team to a little something or sending gifts to clients, it’s a great opportunity to show your appreciation.
With Christmas just around the corner, many businesses will be getting ready to celebrate, whether that’s organising the annual Christmas party or buying gifts for employees and clients.
But before the festivities begin, it’s worth knowing what you can and can’t claim through your business.
We’ve broken down the main HMRC rules and what they actually mean for you.
If you’re organising a Christmas party for your employees, the good news is that you can generally claim the cost as a business expense.
This means the cost can be deducted from your business’s profits before tax is calculated, helping to reduce your tax bill.
But remember, claiming an expense doesn’t mean you get the money back. It simply means your business may pay less tax.
For example, if your limited company spends £1,000 on a staff Christmas party and pays Corporation Tax at 19%, you could save £190 in tax, meaning the party effectively costs your business £810.
The rules can be different for sole traders, and entertaining clients rather than employees is generally not tax-deductible.
You may have heard about HMRC’s £150 Christmas party rule, but this is actually separate from what your business can claim.
The £150 rule is about whether your employees have to pay tax for attending the party.
Your employees won’t normally have to pay tax on the event if:
To work out the cost per person, divide the total cost of the event by the number of people attending, including guests.
For example: If your Christmas party costs £1,500 and 10 people attend, that’s £150 per person. Provided the other conditions are met, your employees won’t have to pay any extra tax.
Something to remember: The £150 limit isn’t an allowance. If the party costs £151 per person, the full amount could become taxable, not just the extra £1.
You can also hold more than one annual staff event, provided the combined cost of the events you claim the exemption for doesn’t exceed £150 per person.
If you’re planning to give your team a Christmas gift, you can usually spend up to £50 per employee, per gift without them having to pay tax.
HMRC calls these trivial benefits, which simply means small gifts that meet certain conditions.
To qualify, the gift must:
For example, a £40 Christmas hamper or £25 shop voucher could qualify.
If a gift costs more than £50, the full amount may become taxable.
Directors of certain small limited companies also have a £300 annual limit on qualifying gifts for themselves and certain family members.
Sending a Christmas gift to a client is a nice way to thank them for their support, but the tax rules are different.
Most client gifts aren’t tax-deductible, meaning you can’t use the cost to reduce your business’s taxable profits.
However, certain promotional gifts can qualify if they:
For example: A branded notebook could qualify as a business expense, but a bottle of wine or Christmas hamper generally wouldn’t, even if it costs less than £50.
If your business is VAT-registered, you may be able to reclaim VAT on certain gifts, even if the gift itself isn’t tax-deductible.
However, if you give gifts worth more than £50 (excluding VAT) to the same person within a 12-month period, you may need to pay VAT on those gifts.
This is why it’s worth keeping a record of what you’ve spent and who you’ve given gifts to.
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