The festive season often brings extra spending for businesses — staff parties, gifts, decorations, client hospitality and end-of-year celebrations. However, not all Christmas-related costs are tax-deductible and misunderstanding the rules can lead to unexpected tax bills later.
Below, we explain what UK small and medium-sized businesses can legitimately claim, what HMRC restricts, and how to stay compliant while still enjoying the festive period.
1. Staff Christmas Parties – What’s Allowed?
HMRC allows businesses to claim tax relief on staff Christmas parties and annual events, provided certain conditions are met:
- The event must be open to all employees
- The cost must not exceed £150 per person (including VAT)
- The £150 limit includes food, drink, entertainment, transport and accommodation
- The allowance applies per tax year, not per event
If the total cost exceeds £150 per head, the entire amount becomes taxable, not just the excess.
This can be a great way to reward staff — but it’s important to plan costs carefully.
2. Staff Gifts and Trivial Benefits
Small gifts for employees are often allowed under the trivial benefits rules. A gift can qualify if:
- It costs £50 or less per employee
- It is not cash or a cash voucher
- It is not a reward for work performance
- It is not part of a contractual entitlement
Examples include gift cards, hampers, wine, chocolates or festive treats.
For company directors of limited companies, trivial benefits are capped at £300 per tax year.
3. Client Entertaining – A Common Pitfall
Client entertaining is not tax-deductible, even at Christmas.
This includes:
- Meals or drinks with clients
- Tickets to events
- Gifts given as part of entertainment
While these costs can still be paid by the business, they cannot be offset against corporation tax or income tax.
Branded promotional gifts (such as diaries or small items with your logo) may be allowable, provided they are low value and not classed as entertainment.
4. Christmas Decorations and Seasonal Marketing
Festive decorations and Christmas-themed marketing can usually be claimed as business expenses, provided they are used wholly and exclusively for business purposes.
Allowable examples include:
- Shop or office decorations
- Festive window displays
- Seasonal advertising and social media campaigns
These costs are typically treated as normal marketing or overhead expenses.
5. Bonuses and Extra Pay
If you choose to reward staff with Christmas bonuses:
- Bonuses are taxable
- They must go through PAYE and National Insurance
- The cost is deductible for the business
Bonuses should be planned carefully to manage both cashflow and payroll liabilities.
6. What About Sole Traders?
Sole traders should be especially cautious. HMRC rules are stricter, and many festive expenses — particularly entertaining and personal gifts — are not allowable.
In general:
- Staff costs may still be allowable
- Personal entertaining is not
- The “wholly and exclusively” rule applies
If there’s a personal element, HMRC may disallow the claim.
Christmas is a great time to reward staff, thank clients and invest in marketing — but it’s also an area where businesses often make costly tax mistakes. Understanding what can and can’t be claimed helps you stay compliant while making the most of the festive period.
Need clarity on what you can claim this Christmas?
Every business is different, and the rules can be nuanced. If you’d like tailored advice on festive expenses, bonuses or staff rewards, our friendly team is here to help.
Get in touch to make sure your Christmas spending is tax-efficient and HMRC-compliant.
