Christmas, celebrations and tax: what your business can (and can’t) claim
The Christmas countdown has begun and we couldn’t be more excited at Blue Rocket.
It’s been another challenging year for many businesses and, with December often bringing a mix of celebration and uncertainty, it’s only natural to want to reward staff and thank clients, without overspending or creating unwanted tax surprises.
Office party season is now well under way, and while HMRC isn’t quite as generous as Santa, there are some helpful tax exemptions you can take advantage of if you know the rules.
Here’s a simple guide to what you can claim this Christmas, and what to watch out for.
Time to party
While there’s no specific “Christmas party allowance”, HMRC does offer a generous exemption for annual staff events, such as a Christmas party or summer BBQ.
You won’t pay tax or National Insurance as long as:
- The event is open to all employees (or all employees at a specific location)
- The total cost is £150 or less per head
- £150 includes VAT, food and drink, entertainment, and any transport or accommodation
- If you hold more than one annual event in the year, the combined cost must stay within £150 per head
It’s important to note that £150 is a strict limit, not an allowance. If the cost comes to £151 per person, the entire amount becomes taxable, not just the £1 over.
Also remember that the “per head” figure is worked out by dividing the total cost by the number of attendees, including any guests or partners, so plus-ones can quickly push the cost over the limit.
And a quick reminder for sole traders: you can’t take yourself out for a festive meal and claim it as a business expense, the exemption only applies to employees.
Christmas gifts to clients
Yes, you can give clients, suppliers or customers a Christmas gift and in some cases it’s tax deductible.
To qualify:
- The gift must cost £50 or less per recipient per year
- It must carry a clear advertisement for your business on the gift itself (think branded diaries, mugs or pens)
- It must not be food, drink, tobacco or a voucher
This means that bottles of wine, boxes of mince pies and gift cards don’t qualify for tax relief, even if they’re beautifully wrapped. And slipping a leaflet into the packaging doesn’t count; the branding needs to be on the item itself.
Christmas gifts to staff
Giving your team a small Christmas gift can be both festive and tax efficient, thanks to the trivial benefits rules.
A staff gift will be tax-free if all of the following apply:
- It costs £50 or less per benefit
- It’s not cash or a cash voucher
- It’s not part of their contract
- It’s not a reward for performance
The key word here is trivial. A bottle of wine, a gift hamper or a small non-cash voucher (such as a store gift card) can qualify, but cash, bonuses and cash-equivalent vouchers do not.
You can give multiple trivial benefits throughout the year, provided each one meets the rules. However, if you’re a director of a close company, there’s an additional cap of £300 per tax year on trivial benefits.
So yes, when Scrooge gives Bob Cratchit a turkey, he’s ticking all the right HMRC boxes.
The Christmas bonus
This is where HMRC really does play Scrooge.
Cash bonuses, including Christmas bonuses, are treated as normal pay, which means they’re subject to PAYE and National Insurance just like salary. Make sure this is factored in when deciding how generous to be.
Enjoy Christmas without the tax hangover
With a bit of planning, Christmas can be generous and tax-efficient. The key is knowing where the limits are and keeping good records.
If you’d like help making sure you’re not missing out on any allowable Christmas expenses, or you want to double-check before committing to plans, speak to your accountant early.
From all of us at Blue Rocket Accounting, Merry Christmas and enjoy the festive season 🎄
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