Claimable expenses on Christmas Parties

Entertainment for clients is not a tax-deductible expense, but an event for staff and their plus ones certainly is and thus can be claimed back as a trivial benefit. So, your limited company can claim its Christmas party as a deductible expense against corporation tax as long as you observe the following rules:

It’s open to all staff

For a party to be tax-deductible, you must ensure total company inclusion. That means all of your employees and directors must be invited. If your business has more than one location or departments, you can put on separate parties, as long as all your staff can attend one of them.

If you are a one-person company, (e.g. the only director and employee) you and your plus one can still enjoy a festive celebration as a deductible expense.

You spend no more than £150 per person

Your entertainment should not exceed £150 (including VAT) per person. The cost per head should be calculated by adding up all the costs of the party, including transport and accommodation, then dividing it by the number of attendees.

You must take care not to go over this limit. Even doing so by just a nominal amount will mean you can no longer claim the tax exemption. If you do overspend, the entire cost will be treated as a benefit-in-kind (BIK) and subject to additional tax and NI.

From HMRC’s point of view, this is an exemption rather than an allowance, so you must spend the money in order to claim tax relief. You cannot take cash or a cash equivalent – so don’t get carried away thinking you can treat yourself to a tax-free Christmas bonus!

Benefit-in-kind: Perks or benefits an employee or director recieve from the company for personal use. Personal costs incured by company directors, may also be considered as Benefit-in-kind.

You claim VAT correctly

VAT on the cost is recoverable but only if you charge any non-employee / director guests, a nominal fee. The fee is subject to what’s known as ‘output VAT’ and needs to be included in the company’s VAT return.

Your entertainment should not exceed £150 (including VAT) per person. The cost per head should be calculated by adding up all the costs of the party, including transport and accommodation, then dividing it by the number of attendees.

Hospitality for Clients

Client entertaining generally is not allowed for corporation tax or VAT purposes, so you cannot claim tax relief for the costs of inviting your clients to your Christmas party. That doesn’t mean you can’t invite them – you certainly can, but if you do; then it is important to separate the staff and client costs and apportion appropriately for tax purposes.

Gifting

You can give small, low-value gifts such as chocolate or a gift card to employees and company directors and this can be exempt from tax and classed as ‘trivial benefit’. There is a limit, however – to be tax-exempt the value must not exceed £50 including VAT. If the cost exceeds £50, the full amount is taxable.

When buying gifts for directors and other office-holders, the total amount provided by the company cannot exceed £300 per year. Again, you cannot give cash or a cash voucher, and you must keep a receipt for your purchase. Also, the employee must not be entitled to the benefit as part of any contractual obligation, and the benefit must not be provided in recognition of services performed as part of their employment duties.

From HMRC’s point of view, this is an exemption rather than an allowance, so you must spend the money in order to claim tax relief. You cannot take cash or a cash equivalent – so don’t get carried away thinking you can treat yourself to a tax-free Christmas bonus!

Gifting clients and customers is generally treated as business entertainment so won’t receive corporation tax relief or be allowable for a VAT reclaim. However, there is an exception for small gifts that don’t exceed £50 a year per client, as long as they carry a conspicuous advert for the company, such as pens, diaries and calendars. Gifts of food, drink, tobacco and vouchers are not allowed even if they have a company advert on them.

Please review the following points carefully:

1. Annual Event Exemption:

• HMRC provides an exemption for businesses to hold annual parties and other recurring social events for staff (e.g., Christmas parties or summer BBQs).
• The event must be open to all employees and purely for entertaining staff and their guests.
• The cost of the function cannot exceed £150 per head (including VAT and additional costs like travel and accommodation).
• Multiple events throughout the year are allowed, as long as the overall cost stays within the £150 per head limit.
• The business should directly pay for these functions (not reclaimed as an out-of-pocket expense).
• Claim the actual cost of the event (no allowance; exact cost) and retain a copy of the receipt.
• VAT can be reclaimed only for officers and employees unless guests contribute a small concession toward the cost.#When guests attend, it’s essential that the receipt clearly distinguishes their expenses from those of your directors, officers, and employees. Accurate allocation ensures we reclaim the correct amount of VAT.
• When guests attend, it’s essential that the receipt clearly distinguishes their expenses from those of your directors, officers, and employees. Accurate allocation ensures we reclaim the correct amount of VAT.
• If the total cost of events exceeds £150, select events totalling less than £150 per head for the exemption to avoid benefit-in-kind implications.

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2. What are Trivial Benefits?

In principle, a Trivial Benefit is a low-value, tax-deductible gift provided by the employer to an employee. An employer does not pay tax for the benefit provided if the following conditions are met:

• The gift or benefit was not given in a form of cash, cash vouchers or other forms of cash equivalent.
• The value of each gift must not exceed the amount of £50 per employee.
• Buying gifts for directors and other office-holders, cannot exceed £300 in total per year.
• Clients gifts will not be considered as a Trivial Benefit. This benefit should be provided to company employees only.
• A benefit wouldn’t count as a Trivial Benefit if it was given as a reward for the professional performance of an employee.
• The benefit is not part of the employee’s contractual agreement.

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3. Business Entertainment:

• When you entertain existing clients, potential clients, or anyone who is not an employee of your limited company, it falls under business entertainment.
• You can claim this expense through the business, but it won’t receive corporation tax relief or be allowable for a VAT reclaim.
• Despite this, claiming the expense through the business is still more beneficial than paying for it personally due to the income tax saved.

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4. Staff Entertainment:

• If you’re entertaining staff with an event held annually, it may fall under the annual event exemption (more details below).
• If the event isn’t covered by the annual event exemption and is purely for staff entertainment (not business entertainment), it would be allowable for corporation tax relief, and VAT could be recovered on the expenditure.
• To make it allowable:

1. Declare the cost of the event as a benefit in kind on employees’ P11D forms, including their guests’ costs.
2. If assigning the benefit per employee accurately isn’t possible, use a PAYE settlement agreement (PSA) to pay income tax and national insurance contributions on behalf of employees.
3. For events costing less than £50 gross per employee, consider trivial benefits (check separate guidance for details).

Ask for advice – before you spend

If you’re thinking of hosting a party or buying Christmas gifts through your company or business, it’s a good idea to advise with your accountant first and make sure you adhere to the tax requirements of Christmas parties and gifting. From all of us at Clever Accounts, Have a Merry Christmas!

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