With Christmas fast approaching, many businesses are planning how to thank their employees and show appreciation to valued clients. Fortunately, HMRC recognises the festive spirit too — and certain Christmas-related costs can qualify for tax relief. These may include staff gifts, decorations, and annual parties. However, there are important limits and conditions to be aware of.
Gifts for Employees
Tax-Free Christmas Gifts
Employers can give staff tax-free gifts at Christmas, provided each gift does not exceed £50. This limit can also be applied as an average cost per head for group outings.
Example: A festive activity for six employees may qualify for tax exemption up to £300 total (£50 each).
If the cost per head goes over £50, the entire gift is treated as taxable.
What Doesn’t Qualify
A gift is not tax-free if it is:
- Cash or a cash voucher (taxable as earnings).
- Part of a salary sacrifice arrangement.
- Something the employee is contractually entitled to.
- Given as a reward for service or performance.
Taxable gifts must be reported on the employee’s P11D.
Multiple Gifts
Employees may receive several tax-free gifts throughout the tax year, as long as each one remains £50 or less.
A tax-free birthday gift and a Christmas gift are both permitted under this rule.
Close Companies
For directors of a close company (such as family-run businesses), tax-free trivial benefits are capped at £300 per tax year.
Gifts for Clients and Customers
Generally Not Tax-Deductible
Gifts to clients and customers do not normally attract tax relief, just like most business entertaining.
Promotional Gifts — The Key Exception
Relief is available where a gift:
- Costs £50 or less,
- Is clearly branded with the company’s name or logo,
- And is not food, drink, tobacco, or a cash voucher.
The branding must be on the item itself, not merely the packaging.
Examples: branded mugs, T-shirts, calendars, notebooks.
Giving Unsold Stock
Businesses may give away unsold stock with a value of £50 or less, provided it is part of their normal line of goods.
A bakery can offer free cakes tax-free — but not Christmas turkeys.
More Generous Gifts
Higher-value gifts may still qualify if given as part of the sale of a more expensive item.
For example, an electronics retailer could include free headphones with a TV purchase, or festive treats like mince pies or a Christmas cake.
Charitable Donations
Christmas charity donations are tax-deductible in the same way as donations made any other time of year — whether for corporation tax or income tax (for sole traders and partnerships).
Christmas Office Decorations
Decorating the workplace for the festive season can be claimed as an allowable business expense. Items such as Christmas trees, lights, and other decorations all qualify.
Exception:
A sole trader working from home cannot claim tax relief for decorations, as HMRC views them as partly for personal enjoyment.
Staff Christmas Parties
Annual Event Requirement
To qualify for tax relief, a Christmas party must be an annual event.
Businesses can hold multiple annual events — for example, a Christmas party, a summer gathering, and an anniversary event — provided they are regular and recurring.
£150 Per Head Limit
The exemption covers up to £150 per attendee per tax year, including VAT. It also includes all associated costs:
- Venue hire
- Food and drink
- Entertainment
- Travel and accommodation
If the cost per head exceeds £150, none of the event qualifies for exemption.
VAT Reclaim
VAT can be reclaimed on staff entertainment — but only for the employee portion of the event.
If 30 employees and 20 non-employees attend, 60% of the VAT can be reclaimed.
Client guests cannot be included in VAT claims.
Open Invitation
To deduct the cost from corporation tax, the event must be open to all employees.
Events solely for executives or selected teams will not qualify.
Sole Traders
Sole traders cannot claim the £150 staff entertainment allowance if they have no employees, as HMRC views personal celebrations as private expenditure.
Christmas Events for Clients and Customers
Entertaining clients — including Christmas parties — is not an allowable expense for tax purposes, even though it may be beneficial for relationship-building.
The Promotional Event Exception
If you host a genuine promotional event (e.g., product launch), some costs such as venue hire may be deductible, though food and drink will not be.
Unsure Whether an Expense Qualifies?
Different HMRC rules apply to limited companies, partnerships, and sole traders, and navigating festive expenses can be complex. If you're uncertain whether a Christmas gift, party, or promotional event is tax-deductible, it’s wise to seek professional advice.
Our team can help clarify what is allowable, assist in reducing your corporate or income tax bill, and advise on VAT matters — ensuring your business stays compliant while enjoying the festive season.
