Yes, it’s that time of year again when the office calendar fills up with festive plans, Secret Santa schemes, and maybe even a well-earned bonus. A good Christmas do is great for team morale but the only thing worse than wondering if you embarrassed yourself at the party is discovering you’ve accidentally triggered a tax bill come January.

As much as we don’t want to play Scrooge, a little awareness of HMRC’s festive rules could save you and your team from an unwelcome contribution to the taxman’s Christmas cheer.

The Christmas party

Believe it or not, HMRC does have a soft spot for a bit of festive fun. Businesses can claim tax relief on staff parties but only if they follow the rules:

• Open to everyone – the event must be available to all staff (attendance is optional, of course).
• £150 per head limit – this total includes everything: food, drinks, entertainment, taxis, and so on.
• It’s an annual allowance – if you’ve already had, say, a summer event costing £50 per head, you’ll only have £100 per head left for the Christmas party.

Go even £1 over the £150 limit, and the entire amount becomes taxable for your employees. So maybe stick to single G&Ts rather than doubles this year!

Staff Christmas bonuses

Whether it’s cash or vouchers, any bonus counts as income and must go through your payroll in the usual way. Be mindful of whether you’re offering a net or gross bonus; it makes a big difference to the overall cost. (Your accountant can help you work out which is best for your team and your budget.)

Christmas gifts

To employees:
You can give staff small gifts, tax-free if they qualify as trivial benefits – typically, that means the gift costs £50 or less, isn’t cash or a cash voucher, and isn’t a reward for their work. A nice bottle of wine or a Christmas hamper fits the bill nicely.

To clients:
Gifts to clients can also be tax deductible if they meet HMRC’s criteria:

• They must cost under £50, and
• They must include a prominent logo or advertisement for your business making them a form of marketing.

If you go over the limit

If you’ve already spent a bit too much – or realise after the fact that something doesn’t qualify, don’t panic. Just let your payroll manager or accountant know. They can handle the correction through payroll or an annual P11D, ensuring the right tax and National Insurance is paid.

Need some help?

If you’re unsure about what counts as allowable or want to plan your company’s festive spending efficiently, we’d love to help. Get in touch to chat through your Christmas plans, we’ll make sure your celebrations stay merry, bright, and compliant.