Unwrapping Christmas expenses

As the festive season approaches, so does the question: Which Christmas expenses are tax-deductible? Whether you’re a sole trader, limited company, or run a small business, understanding HMRC’s rules helps you optimise holiday spending without falling foul of tax regulations.

✅ What You Can Claim

1. Annual Staff Christmas Parties – The £150 Exemption

Providing the event meets HMRC’s criteria, a year-end staff party can be fully tax-free up to £150 per head, including VAT. This covers costs such as venue hire, food, drink, entertainment, transport—and even accommodation if applicable.

Key points:

• Open to all employees (separate events allowed if everyone can attend one).

  
  

• Combined cost of multiple events (e.g. summer + Christmas) must not exceed £150 per head.

  
  

• If you’re sole director, you and a partner count your event as long as it fits the aim of being a staff occasion.

  
  

If this cap is exceeded—even slightly—the entire cost becomes a taxable benefit (reported on P11D, with Income Tax and Class 1A NIC due).

2. Staff Gifts – "Trivial Benefits"

Small gifts to staff qualify as trivial benefits if they meet all the following:

• Cost £50 or less per person

  
  

• Are not cash or cash vouchers

  
  

• Are not linked to performance or contractual entitlement

  
  

• Provided outside PAYE/payroll

  
  

Examples: hampers, wine, chocolates (under £50).

For directors of close companies, there's an annual ceiling of£300across all such trivial benefits.

3. Client Gifts – Strictly Limited

Tax relief for client gifts is heavily restricted. You can only claim when:

• The gift includes a conspicuous advert (e.g. branded calendar, pen, mug)

  
  

• It costs £50 or less per recipient

  
  

• It’s not food, drink, tobacco, or vouchers

  
  

A branded pen is acceptable, but a branded box of chocolates crosses the line and is therefore non-deductible.

4. Christmas Decorations

Decorations for commercial premises can be claimed as a business expense. However, if you work from home, HMRC might see them as partly personal and disallow the claim.

5. Charitable Donations

Donations to registered UK charities made for business purposes are tax-deductible, just like at other times of year. Personal donations may qualify for Gift Aid, but are not business expenses.

❌ What You Cannot Claim

• Client Entertainment

Festive client lunches, drinks, or events are considered business entertainment—not deductible.

• Christmas Hampers for Clients

Food, drink, alcohol, vouchers, or hampers sent to clients don’t qualify—even if branded.

• Cash Bonuses & Vouchers to Staff

Cash bonuses or vouchers to staff are subject to PAYE and National Insurance; they’re not eligible under trivial benefits rules.

• Excess Staff Party Costs

Exceeding £150 per head—even by £1—makes the entire party cost taxable.

• Home-Based Decorations

If you're self-employed and working from home, home decorations are likely viewed as personal and aren’t deductible.

Final Gift-Wrapping Tips

To maximise festive tax relief:

• Track per-person costs of parties, gifts, events.

  
  

• Keep receipts and document business “why”.

  
  

• Stay within the £150 party and £50 trivial benefit thresholds.

  
  

• Apply advertising tags on client gifts and avoid restricted items.

  
  

By following the rules, you can spread Christmas cheer and keep your tax bill in order. A little festive planning goes a long way!

If you want more information or some further advice with submitting your expenses, check out my YouTube videos, Website or get in touch with me: rich@bookkeeping4u.biz