It’s December, and you know what that means? It’s time to dig your tinsel out and get into the festive spirit! Lights, the smell of pine trees, the sound of Christmas songs on the radio and the joy of giving gifts to your loved ones. It really is the most wonderful time of the year!
But while all of these are great things to do, you might want to keep an eye on the purse strings – especially if your business slows down at this time of year. That means working out the most tax-efficient ways to put things through your business, understanding what you can and can’t expense, and what you can claim back on.
That’s where I come in! There are generally 3 main areas to look at when it comes to festive expenses: gifts, parties and decorations.
Gifts
Giving gifts is one of the big traditions of Christmas, and many businesses like to use this time to send their customers a small gift to thank them for their support over the previous year. Most of the time, you can buy these things through your business directly, and they always go down a treat with your customers! But generally, they won’t reduce the size of your corporation tax bill, and you won’t be able to claim any VAT back on them either. Which can be a bit frustrating.
Of course, there are a few exceptions to this rule. You can claim VAT back AND use them to reduce your corporation tax bill if the gifts:
- Are not food, drink, tobacco or a voucher.
- Contain a clear advert for your business.
- Keep the total of gifts to that person during your accounting period below £50.
So if you’re clever, you could get the benefits of giving gifts (and the warm fuzzy feelings), and give yourself the gift of a lower tax bill.
But what if you want to give your employees gifts as well? Here, the rules are slightly different. You can claim the VAT and corporation tax relief on these as long as the gift is entirely for the employee. None of the strings above. As long as the gift is ‘trivial’ (like a bottle of wine, for example), then you’re in the clear.
Be careful here though, because giving a substantial or cash-based gift could be considered a ‘benefit in kind’, which means the employee would be taxed on it and you would need to report it to HMRC using a P11D form.
I know that sounds a bit complicated, so if you want to double-check your Christmas gift ideas, give me a call and I’ll be happy to help.
Parties
Everyone loves a good Christmas party! It’s a staple in most business calendars, and an opportunity to show your employees just how much you value them and their contributions to your business success.
The good news is that HMRC actually provides tax relief to limited companies for the cost of holding an annual party (it doesn’t have to be Christmas, but a lot of businesses use it for this). This allows you to deduct the cost of the party as an expense, reducing your company’s profit and lowering the corporation tax bill. Win-win! But there are a few rules you have to follow:
- The cost of your party has to come to less than £150 per head. This amount takes into account everyone who attends the event, including non-employees. If the cost goes to £150 per head, the exemptions go away.
- The event has to be held once a year, and not be a one-off event.
- It has to be open to every employee in your company. So directors-only dinners or social events for one department don’t count.
- If your company is VAT registered, then you can also claim the VAT paid on the event back (for that £151 employee spend only), as it comes under the category of ‘staff welfare’.
Want an extra bonus tip? You can use this event for multiple events throughout the year, as long as you don’t go over that £150 per head limit. For example, if you throw a Christmas party that costs £10,000 and a summer party that costs £4,000 and 100 people attend each of them, then the cost would come to £140 per person, so both events would be exempt. But if your summer party costs £6,000 instead of £4,000, then the cost per head would be £160, and the exemption wouldn’t apply. It can take some maths to get your head around – but if you have a good bookkeeper, they can keep track of all that for you.
Decorations
Bringing down the box of Christmas decorations often signals the start of Christmas for individuals and businesses alike. Even if you’re a tradesperson who spends most of your time in a van, you can get yourself something festive to brighten up the place.
The good news is that as long as the decorations are for a place of work (like an office) and not in your home, you can buy your Christmas tree and decorations on the business, or expense it back. Plus, if you want to send Christmas cards to your customers, this counts as an expense under advertising, stationery and printing costs.
Time might be ticking away, but it’s not too late to get things in order for Christmas. If you feel like you’re drowning in paperwork, or you just want to start 2026 off on the right foot, I can help. At Bluebell Bookkeeping & Admin Services, I can handle all aspects of business bookkeeping, from simple sanity checks to a fully managed service, leaving you free to focus on running your business. If you’d like to know more, just get in touch and book your free consultation today.