Are my Christmas party and gifts tax deductible?

If you are treating your employees to a Christmas party, Christmas lunch or dinner, or giving them a gift to show your appreciation you should be aware of how HMRC views the costs of your generosity.

If you are having a Christmas party or going out for lunch or dinner HMRC will allow you to claim £150 per head as long as this is the only social event you have had during the year.  If you have had a summer event as well the per head cost of that must be taken into account  as £150 per head is the maximum amount you can claim against tax on social events in a year.  If your second event takes you over the £150 per head limit you will not be able to claim any of the cost of the second event.

The social event must be open to all staff for the expense to be allowable and not just to Directors, Partners or Managers.  You are able to claim the VAT on the cost of your Christmas party or Christmas meal but if you also pay for the guest of any employee you would not be able to claim the VAT on the guest portion of the cost.

If you are planning to give your staff a cash bonus this Christmas it must go through the payroll as it is a taxable benefit and must have National Insurance Contributions deducted.

However if you want to give your employees a gift this is not taxable as long as it is trivial.  There is no guideline but a bottle of wine, a turkey, or a box or chocolates would probably be considered trivial but a hamper or a case of wine would not.  So if you plan to give your employees a gift which could not be considered trivial this must be reported on a P11d  and Class 1A National Insurance contributions paid on the value of the benefit.

If you are a sole trader you will be giving gifts personally and therefore there are not reporting requirements, but this means, of course, they would not be allowed as an expense of your business.

No entertaining or gift expense is allowable if it is purely for the directors, partners or business owners. Entertaining and gifts are to reward or boost the morale of your staff and not the business owners.