Our website uses cookies to enhance the visitor experience (what's a cookieCookies are small text files that are stored on your computer when you visit a website. They are mainly used as a way of improving the website functionalities or to provide more advanced statistical data.). Are you happy for us to use cookies during your visits?
Please note: continuing without making a choice equates to giving us your consent, which you can withdraw at any time via our cookies policy page.

It's Christmas Party Time Mr Taxman!

Newsletter issue - December 07.

You may be about to have your firm's Christmas party and hand out seasonal gifts for staff and customers, but remember there are strict rules about what is deductible for tax and reclaimable for VAT.

The cost of entertaining customers or potential customers is not tax deductible for income tax or corporation tax. Your accounting records need to distinguish between the cost of hospitality such as the provision of food or drink, and significant gifts to customers, from other marketing expenditure. The amount classified as non-deductible entertaining is added back to the profits to calculate the tax due.

Free samples of the products or services your business normally sells are permitted, as long as you are not in the food or restaurant business. Small promotional gifts of any item are also acceptable if they cost less than £50 each and carry a clear advertisement for the business, although food, drink, tobacco and gift tokens of any value do not fall into this exemption. Small gifts worth more than £50 in total should not be made to the same person in one year.

You can't reclaim VAT on the costs of entertaining customers or potential customers. Where your staff are required to attend an event to act as hosts for potential customers, all of the VAT cost is blocked. A VAT registered business can reclaim the VAT on small gifts that cost up to £50 each, including gifts comprising of tobacco and alcohol.

Entertaining staff is tax deductible if it is not incidental to customer entertaining. The VAT on staff entertaining can be reclaimed, but a portion of the cost may need to be disallowed where customers also attend the event.

Staff entertainment can be tax free for the employees if it is in the form of an annual event or number of events to which all the staff are invited. However, you should try to limit the annual cost to £150 per head, counting all those who actually attend the event. If the costs exceed £150 per head (including VAT) your employees will be taxed on the total cost per head (not the excess above £150) as a benefit in kind. You as the employer can pay this tax on behalf of your employees through a payroll settlement agreement (PSA), but this does involve a degree of grossing-up, which can be expensive.

  • Auto enrolment icon

    Auto Enrolment

    Workplace pensions rules are changing.
    Be prepared for auto enrolment, see how we
    can help and read up on our guidance notes.


  • Cloud accounting icon

    Cloud Accounting

    With our online bookkeeping packages, our support
    services are only a click away.
    Discover cloud accountancy solutions to bring your finances up to date.

  • Pay less tax icon

    Pay Less Tax

    Our experienced tax advisors can help you
    make the most of your options to reduce
    your tax bills.


  • Make more profit icon

    Make More Profit

    From business plans to management accounts,
    our business services will ensure you are in
    control of your business finances.


  • Source finance icon

    Source Finance

    Our experienced partners can guide you
    in getting the finance you need to make
    your business grow. Read our guides or
    contact us for a free consultation.

  • Outsource your payroll icon

    Outsource Your Payroll

    Let us handle payroll compliance for your
    business. We can deal with HMRC on your
    behalf, and take the stress out of RTI.