Christmas party allowance, trivial benefits and more

Christmas is a time for parties, presents and a sprinkle of generosity. If you run a limited company, we’ve got a few ways you can make your Christmas a little bit more tax efficient. Here we cover the allowances, the limits and the rules that come with the benefits, so you stay off HMRC’s naughty list.

Your limited company Christmas party allowance

Your company can pick up the bill for the Christmas party. Normally, perks from your employer count as taxable income, but a staff party is tax-free for everyone who comes as long as it costs £150 or less per head. The company gets corporation tax relief on the cost too.

The party needs to be open to all your staff, and they’re welcome to bring a partner. You need to work out the cost per head by dividing the total bill by everyone who comes. For example, a meal for you and your partner costing £280 works out at £140 a head, and you’re within the limit. A few things to remember:

• The £150 includes everything: food, drink, transport, any overnight stay, and VAT
• It’s £150 per head across the whole tax year, not per event. If you also have a summer barbecue, the two together need to stay under £150 to qualify
• Go even a penny over the £150 and the whole amount becomes taxable, not just the extra

Trivial benefits: Christmas gifts for your team

Want to give your staff a little something? The trivial benefits rule lets your company give each employee a gift worth up to £50 without any tax or reporting. To qualify, the gift must:

• cost £50 or less (including VAT
• not be cash, or a voucher that can be swapped for cash
• not be a reward for work or performance, or something in their contract

A bottle of something nice, a hamper or a gift card all work well. As with the party, the limit is strict: a gift costing £51 is taxable in full.

Trivial benefits for directors: a gift for you

As it’s the season of giving, you might want to give yourself a gift too. The trivial benefits rule applies to directors too, so your company can treat you to gifts of up to £50 each.

As a director, you can treat yourself to up to £300 of trivial benefits each tax year, with each gift costing no more than £50. Most people make the most of it with six £50 gifts. Gifts to your family or household count towards your £300 too.

Are client gifts tax deductible?

If you want to spread the festive joy to your clients, you need to be careful about what you gift them. The usual festive favourites (chocolates, wine, event tickets) aren’t tax deductible.

If you want to give a tax deductible present, it needs to:

• cost no more than £50 per client, per year
• carry an advert for your business, such as your logo or company name
• not be food, drink, tobacco or a voucher for any of these

Common examples include branded mugs, notebooks and pens, but you can get a bit more creative. If the gift ticks all three boxes above, your company can claim the tax relief.

Charitable donations from your limited company

If you’d like to give something back this Christmas, donating through your limited company is a tax efficient way to do it. Donations to registered UK charities are exempt from corporation tax, so they reduce your company’s taxable profits.

Check the charity is registered before you give. It’s a good way to make sure your money goes to a genuine organisation, and it’s what makes the donation qualify for corporation tax relief.

Christmas tax tips overview

Not sure if your festive fun is within the rules? Get in touch with your question.