As the festive season approaches, many small businesses start planning staff celebrations and gifts to say thank you for a year of hard work.
How much of your festive generosity is tax-deductible and what do you need to watch out for with HMRC rules?
Here’s a simple guide to what is allowed, what’s not and how to keep your celebrations tax-efficient and compliant.
🍽️ 1. The Staff Christmas Party — HMRC’s Annual Event Exemption
HMRC allows you to provide an annual event such as a Christmas party or summer gathering without it being treated as a taxable benefit for your employees.
To qualify for this tax exemption, your event must meet three key conditions:
It’s an annual event (like a Christmas or summer party).
It’s open to all employees (not just directors or selected staff).
The total cost is £150 or less per head (including VAT, food, drink, entertainment and any transport or accommodation).
If all three are met:
- The cost is tax-deductible for your business.
- There’s no benefit-in-kind charge for staff.
- You can reclaim VAT (if applicable).
If you go over £150 per head, even by £1, the entire amount becomes taxable, not just the excess.
💡 Tip: The £150 limit applies to the total of all annual events (e.g., if you host both a summer and Christmas party). You can split the allowance between them.
🎁 2. Staff Gifts — The Trivial Benefits Rule
Small staff gifts can also be given tax-free under HMRC’s “trivial benefits” exemption, provided they meet specific criteria.
To qualify, each gift must:
- Cost £50 or less per person (including VAT)
- Not be cash or a cash voucher (gift cards for stores or experiences are fine)
- Not be a reward for work or part of an employee’s contract
- Not be part of a salary sacrifice arrangement
Examples that qualify:
- A supermarket or Amazon voucher worth £30
- A bottle of wine, box of chocolates or festive hamper
- A birthday or Christmas gift
Directors of close companies (usually small limited companies) have an annual cap of £300 total per tax year under this rule.
🧾 3. What You Can’t Claim
Some common festive expenses are not tax-deductible, including:
- Client entertaining (meals, drinks, or gifts for customers)
- Cash bonuses or performance rewards (treated as salary)
- Non-qualifying staff events or gifts over the HMRC thresholds
These may still be great for morale or client relationships but remember, they won’t reduce your tax bill.
💰 4. VAT and Record-Keeping
If your business is VAT-registered, you can usually reclaim VAT on staff entertaining costs but not for partners or family members attending the same event.
Keep clear records of:
- Guest lists (to confirm it was a staff event)
- Invoices and receipts
- Cost breakdowns (including VAT)
These details can make all the difference if HMRC ever reviews your accounts.
Please also see: https://www.gov.uk/expenses-benefits-social-functions-parties
💎 How An Accounting Gem Can Help
At An Accounting Gem, we help small businesses enjoy the festive season without stressing over tax rules.
We’ll guide you on:
- Which costs are fully deductible
- How to stay within HMRC limits
- Smart ways to give staff gifts or rewards tax-efficiently
- Accurate bookkeeping to support your claims
Enjoy celebrating your team’s success, we’ll take care of the numbers behind it.
📞 Get in touch to review your year-end expenses and make sure you’re claiming everything you’re entitled to.
Please see another An Accounting Gem blog: https://www.aag-accountants.co.uk/sole-trader-or-limited-company-choosing-the-best-structure-for-your-business/
Google 5.0
