How much can I spend on a Christmas party and gifts for my employees?

HMRC have set a limit of £150 per person for entertaining your employees. By employees, HMRC refers to people who are on your payroll. Subcontractors and freelancers are not included. The set amount of £150 can be used on different occasions throughout the year (for example, a summer social and a Christmas party), but the total amount must not exceed £150 per person in the same tax year.

It’s important to remember that this allowance is an exemption, not an allowance. So if you go even £1 over the £150, none of the cost is tax deductible — not just the excess. This catches a lot of business owners out.

Believe it or not, entertaining clients is not a tax-deductible expense, despite what many business owners may think. If you do pay for client entertainment then unfortunately you cannot claim this back against your tax. If you do so and you’re investigated, you’ll have fines to pay from HMRC.

If you choose to entertain employees and clients together then you can only claim for the amount spent on your employees and not your clients. A common way around this is to make sure you keep clear records of how many employees attended and what proportion of the bill relates to them — it makes things much easier if HMRC ever ask.

Gifts

You can show your appreciation to your employees by offering a token gift at Christmas. The amount you spend on them must not exceed £50. If it does, you cannot claim any of the amount back under the trivial benefits rules.

Gifts for your employees can be in the form of a bottle of wine, a box of chocolates, a plant, or a voucher — but not cash or anything that can be exchanged for cash. And yes, if you’re on the payroll you can even treat yourself to something up to the value of £50 too!

Just a note: the gift must not be a reward for work or performance. It has to be a genuine “thank you” or seasonal token, otherwise it becomes taxable.

If you’re also considering buying your clients a gift, you can do so, but the item must be branded with your logo and not exceed £50. Things like branded diaries, mugs, calendars, or stationery are usually perfect.

Anything seen as hospitality (like food, alcohol, hampers etc.) can’t be claimed.

We know how confusing it can be when it comes to claiming your expenses, especially around Christmas when there are lots of small costs that add up. Hopefully this has clarified what you can and can’t do, and helped you avoid any surprises from HMRC.

If you need any further support then please reach out — we’re always here to help make things that little bit easier.

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