For lots of people, Christmas is an opportunity to take a bit of time out, but for those running businesses a Christmas party or gift can also be a chance to reward employees (and yourself) and thank your clients for their business.
Fortunately, HMRC do offer some incentives if you are feeling festive although, as ever, the rules for claiming tax relief against your Christmas do are pretty strict.
To help you avoid any expensive mistakes, we’ll go over what you might be able to claim for your work Christmas party, any gifts, and all the trimmings.
Can I claim my Christmas party as a business expense?
Yes, but as you might expect, there are some rules! Despite their penny-pinching reputation HMRC isn’t totally devoid of Christmas cheer and allows limited companies (but not sole traders) to put on a social event and claim it against tax. In order to be exempt, the event must:
Be open to all members of staff
Be an annual event (such as your office Christmas party, or a summer garden party)
Cost less than £150 per head for the tax year
As long as you comply with these rules then you are good to go.
What happens if I spend more?
One of the key things to remember is that this is an exemption, not an allowance. To provide some Scrooge-like caution: don’t spend more than £150 per person in a tax year. The minute that extra mince pie tips you over £150 per head, the whole thing becomes taxable.
If you go over the exempt amount, even by £1, then the whole amount is taxable.
Can I claim a virtual party as a business expense?
Yes. A virtual party is still claimable as long as it complies with the rules. Lots of businesses work remotely these days, so as long as all the other conditions are satisfied you can go ahead with logging in for a totally virtual party.
Can I claim for more than one staff party in a year?
Yes absolutely, and it’s up to you how you allocate the allowable £150 per person throughout the year. Spend £25 on a spring bash, £25 on a summer picnic, £25 on a Halloween spook-fest and then £75 on a great Christmas disco. You can split it any way you want, as long as you follow the rules, and don’t pass the £150 limit.
Naturally, some costs will be easy to work out. You may have booked to have a meal at a location that charges £60 per head for example. Others won’t be so clear, such as booking a DJ or table magicians, so you’ll need to add up the cost of the whole event and then divide it by the number of people attending.
Can I invite clients or subcontractors?
Inviting your clients or subcontractors falls into the realm of business entertaining which isn’t allowable, so you won’t be able to use it against your tax bill.
Can I claim for partners at a Christmas party?
The good news (maybe) is that you also get an exemption for a plus one. As long as they are a family member or partner then you can claim another £150.
Can I claim for a Christmas party at more than one location?
Yes. If you have a company that has more than one location, then you can hold separate events. By the same token, if you have different departments then they can each have their own party, but every employee must have the chance to attend at least one of the parties. The total spend for each person can’t go over that £150 mark.
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Can I give my employees a Christmas present?
You can give what HMRC terms ‘trivial’ gifts to staff, such as food, chocolates, or wine (HMRC include the example of a turkey). These are allowable expenses that you can offset against your tax bill and aren’t a benefit-in-kind for the recipient (we’ll explain these further down).
What counts as a trivial benefit?
A trivial benefit is a small, one-off gift that you might give to your directors and employees throughout the year.
In the past, these would need reporting to HMRC for tax and National Insurance purposes, but the new trivial benefit exemption means that you won’t need to as long as you comply with the rules:
The value of the benefit must be under £50
The gift must not be cash, or a voucher that can be exchanged for cash
It must not be given for good performance at work
It can’t be in the terms of their contract
As long as the benefits comply with the rules above then there is no limit for employees. For directors of close companies (controlled by 5 shareholders or less), the aggregate amount in one tax year is £300, so this could equate to six gifts of £50, for example. If it’s within the guidelines you won’t need to pay tax, NI, or even let HMRC know. Good stuff.
Examples of trivial benefits
We can’t hope to think of all the different gifts a business might give their employees during the year, but to give you an idea of some of the things we’ve seen over the years:
A hamper to celebrate the birth of a new child
Flowers for someone in hospital
A cheese hamper for someone passing an exam
A set of driving gloves for an employee passing their driving test
Champagne on a birthday
A bike helmet for someone who cycles to work
A team bonding trip to paintball
What happens if I go over the spending limit?
If your Christmas gift (or whatever the event might be) goes over the £50 limit then the whole amount become a taxable benefit. Also known as Benefits in Kind, you’ll need to report these using a P11D form or through payroll so you can pay employer’s National Insurance and your employee can pay income tax on the equivalent cash value.
There’s certainly nothing stopping you, but if you want to claim the cost as a business expense it must:
Cost less than £50
Prominently feature promotional logos or adverts for your business. For instance, a Christmas card which includes the details of your New Year sale, or a calendar with your logo on it. That way, it’s an advertising cost.
Consumables such as food and drink aren’t tax deductible due to their temporary nature.
How does tax work for my employee’s Christmas bonus?
One possible exemption is if you’re giving an employee a non-cash long-service award. If any of your staff have worked for you for at least 20 years then you are able to give them a long-service award, tax free. It can’t be cash, and it must be worth less than £50 per year of service.
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A content writer specialising in business, finance, software, and beyond. I'm a wordsmith with a penchant for puns and making complex subjects accessible. Learn more about Elizabeth.