Can Christmas gifts and parties be claimed as a business expense?
With Christmas around the corner, a few of our clients have been asking “can you claim gifts to customers and a Christmas party as an expense?”
In short, yes. In this article, we look at the tax and VAT implications.
Can I give gifts to customers, clients, and suppliers?
You can send gifts to the value of £50 (including VAT) to any one person in any one tax year. For a gift to qualify for tax relief and for you to be able to claim the VAT back, it must carry an advert of your business. For example: logo-embossed diaries, pens, and bottle openers are all allowable. Food, drink, tobacco and vouchers are not allowable, even if they carry an advert for your business.
If you’re registered for VAT, you must pay VAT to HMRC if you make gifts worth more than £50 a year to any one person.
Does a Christmas party count as a business expense?
There is no specific allowance for a ‘Christmas party’ as such, however, HMRC does provide limited tax relief against the cost of holding an ‘annual event’ for your company, providing certain conditions are met.
- The party can be any time of year or spread over several events during the year.
- The spend per employee should not exceed £150. If you go over the £150 limit, then the entire amount will be disallowed (not just the excess over £150). That includes VAT and other costs such as accommodation and transport.
- All staff must be invited, it cannot be an all-directors affair – unless your staff are directors.
- Your festivities must be for your employees. Your staff must be the number one reason for throwing the party, otherwise you won’t be eligible for tax deductions.
- If husbands, wives, or partners attend, the expense will still be allowable if the total amount including guests is no more than £150 per employee in attendance
HMRC has confirmed that the annual party exemption also applies to the costs associated with virtual parties and festivities in the same way that it would for traditionally held parties.
Can I claim for a party for one?
There’s often confusion around if you can claim for a Christmas party for one i.e., you’re the sole director.
It’s simple, ‘Yes’, you can still claim for a Christmas party for yourself. As long as it meets the criteria set out above, it will be exempt from tax and National Insurance.
Do gifts to staff count as a business expense?
Christmas presents up to £50 per member of staff, can be given to employees tax-free. You can claim VAT back on these amounts (if VAT registered) and your business gets tax relief on the deductible expense. You MUST NOT exceed the £50 limit. Even if you go over by 1p, the amount becomes a taxable benefit for the employee and tax and NI is due. Gifts of cash and bonuses must be put through the payroll system in the usual way.
Can Christmas decorations be claimed as a business expense?
You can claim full tax relief and VAT on decorations for the office. If you’re a homeworker HMRC takes the view that they are for your personal enjoyment and are therefore disallowed for tax and VAT.
A Christmas party is an exemption, not an allowance
The cost of claiming a Christmas party is considered an exemption, not an allowance. This means that if the cost goes over £150 by even a penny, the entire expense is subject to tax and National Insurance. And it must also be recorded on the P11D.
Calculating the cost of the function is easy. If it’s just you – total up the associated costs. If you have employees, add up the total and divide it by the number of attendees, to get the cost per head.
As an end note, it’s important to note that the £150 cost per head is for the entire year. So, if you decide to host several functions throughout the year, the total cost of these must not exceed £150. If they do, they’ll be subject to tax and National Insurance.
If you’re unsure about what to claim or need further advice, feel free to contact us on 028 9031 6950.