Understanding what are expenses in the Christmas party season

Understand what are expenses so you can ensure you plan any Christmas expenditure, from client gifts to staff parties, tax efficiently“What are expenses” is a question often posed to us, and still causes some confusion among business owners. This is exacerbated in the festive season when there can often be all sorts of extra costs, so working out what are expenses when it comes to expenditure at Christmas time will help business owners claim for the right things, and understand what can be offset against tax liability.

So whether it’s a staff Christmas party, client gifts or a cab home, make sure you’re in-the-know when it comes to what are expenses that can be claimed for.

Christmas staff parties – whether you’re treating staff, or yourself if you work alone (it is Christmas after all!), there are some rules about exemptions from tax duties. Events such as annual Christmas parties, summer social events are exempt from tax and NICs – and 100% of the cost can be written off as a business expense – as long as it is available to all employees and doesn’t exceed £150 per head. It’s important to note this is a total figure for the year, so if you blew some of the budget on the summer event, this will need to be taken into account when planning the Christmas soiree. If employee partners are invited, the cost should still not exceed £150 per head for each employee invited.

Client/customer entertaining – you may want to treat your clients or customers at Christmas time, to get in the party spirit and thank them for their custom over the year. This is tax deductible, however, only 50% of the cost can be classed as a business expense. This means you’ll foot the bill for the other half. This might be a contributory factor when deciding who to take out, and where to take them!

Christmas gifting – giving gifts is a significant part of Christmas, and when it comes to treating clients, Christmas gifting provides a great opportunity to do just that. HMRC will allow a business gift worth up to £50 in any tax year. It should be a gift relating to business (stationery items, for example), must carry a ‘conspicuous’ advertisement for the company, and cannot be food, drink or tobacco. Anything exceeding £50 would be disallowed in its entirety, not just the amount by which it exceeds the £50. When it comes to gifting for staff, anything over and above the annual party allowance is taxable.

So before you pull a cracker, don your Christmas hat and start swigging the fizz, make sure you plan your Christmas expenses as efficiently as possible to reduce tax burden.