The festive season is rapidly approaching and whilst you’re planning your staff parties and buying gifts, it’s important to understand what your business can legitimately claim for. Getting it right means staying compliant with HMRC whilst maximising your tax relief. Here’s what you need to know.

Team Christmas parties: the £150 rule

Good news is that your annual Christmas party is tax-deductible as long as you follow HMRC’s guidelines. You can spend up to £150 per head (including VAT) on an annual function without triggering a tax charge for employees or losing your tax relief.

This £150 threshold must cover everything including venue hire, food, drink, entertainment, transport, and accommodation, if needed. Crucially, the party must be open to all team members although not everyone has to attend, they must be invited, and you can only claim for one event per year under this exemption. If you exceed £150 per person, the entire amount becomes taxable, not just the excess, so be aware and budget carefully.

Team gifts: trivial benefits exemption

Small gestures go a long way and HMRC recognises this through the trivial benefits exemption. You can give staff gifts worth up to £50 each without creating a tax liability, provided they’re not cash or vouchers exchangeable for cash.

Think hampers, gift or experience vouchers, gift sets or even something useful such as a torch, notepad or an emergency car kit – a very useful gift that we personally received one year! You can give these trivial gifts multiple times throughout the year including at Christmas. The gift cannot be part of a contractual obligation or reward for performance, it must be a genuine gesture of goodwill.

Director gifts: the £300 annual cap

If you’re a company director, you can receive trivial benefits too. Directors of close companies (typically limited companies with five or fewer shareholders) can receive gifts worth up to £50 each, but there’s an annual cap of £300 across all trivial benefits received in a tax year.

This means you could receive six separate £50 gifts throughout the year. Gifts must be non-cash, not contractual, and not performance-related. This cap also extends to gifts given to members of your household unless they’re separately employed by the company.

Corporate gifts for clients

When it comes to thanking clients and suppliers, HMRC takes a stricter view. You can claim tax relief on corporate gifts costing up to £50 per recipient per year, provided they carry a clear advertisement for your business (your company name or logo).

You cannot claim for food, drink, tobacco, or vouchers exchangeable for goods but you can claim for branded items like desk accessories, USB drives, or calendars.

Other festive expenses

Don’t forget that whilst entertainment costs for your team are generally allowable up to the £150 limit, entertaining clients isn’t tax-deductible, even at Christmas.

If you choose to give your team a bonus, this is deductible but subject to PAYE and National Insurance. You could consider a non-financial gift instead such as an extra day off for Christmas.

How can Hour Hands help?

Christmas expenses can be a minefield of HMRC rules and thresholds so before you plan any expenditure, do give our experienced bookkeepers a call for guidance. We’re on hand all year round with ongoing help or support with particular tasks and one-off projects. We can also help you with planning and sourcing gifts or sending corporate Christmas cards – the Hour Hands elves just love this work!