What entertainment and gifts are classed as tax deductible?

Annabel Barnes • 22 November 2022

What entertainment and gifts are classed as tax deductible?

December is quickly approaching and you’ve probably already started making plans for this year's Christmas celebrations with your staff and clients. Perhaps you’re also considering buying gifts. If that’s the case there’s some things you need to consider.

Gifts

Did you know that you have to limit the amount you spend on both clients and employees? The limit set by HMRC is £50 per person. This doesn’t mean you can spend more and just claim back the first £50, that’s not how it works. If you exceed the amount, even by a penny, then the whole amount is no longer classed as an allowable expense. This rule applies to both employees and clients.

There are also rules on what you can buy as a gift in order for it to be tax deductible. For employees you can buy alcohol and food but not tobacco. You can also give them a voucher but it cannot be in the form of cash. The great news is, if you’re on the payroll you can get yourself a gift too!

The rules are different when buying gifts for clients. The items you purchase must be branded with your company logo in order for them to be tax deductible. This can be anything from an item of clothing to a notebook. The gift cannot contain alcohol or tobacco and vouchers and cash are not allowed.

Make sure you abide by these rules when making your Christmas purchases. If you don’t you could be in trouble if you’re ever investigated by HMRC.

Entertainment

The great news is you can throw an amazing Christmas party to thank your employees for the wonderful job they have done this year. However, you do have a budget to stick to if you want to offset the costs against your expenses. You can spend £150 per head on entertainment. This amount can be split throughout the year, so if you want to throw a summer party too you can, so long as you only spend £150 per head in total across both events. The party must be open to all employees and subcontractors and freelancers aren’t included.

The sad news is, and where most companies fail to comply, is that client entertainment is not an allowable expense. If you’re throwing a joint party for both clients and employees make sure that you only claim for the amount spent on employee entertainment.

We hope you found this information useful. Enjoy your celebrations and Christmas shopping! If you need any further advice about your expenses then please get in touch.

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