The staff party, gifts to your people, gifts to clients, and the December spending that quietly becomes personal. Two of these rules are cliff edges, where a pound over the limit costs you the whole relief rather than the excess.
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Christmas is the time of year when the line between a business cost and a personal one gets blurriest, and the rules are narrower and more technical than most people expect. Two of them are cliff edges, where going a pound over a limit costs you the whole relief rather than the excess.
| Spending | Limit | The catch |
|---|---|---|
| Annual staff party | £150 a head | An exemption, not an allowance. Fail it and the whole event may be taxable |
| Gift to an employee | £50 | Must not be cash, a cash voucher, or a reward for work |
| Director of a close company | £300 a year | An annual cap on trivial benefits, on top of the £50 each |
| Gift to a client | £50 | Must be branded, and never food, drink, tobacco or vouchers |
| Entertaining clients | Nothing | Not deductible for Corporation Tax, whatever it costs |
The best-known one, and the most useful. An annual social function may be exempt from tax and reporting if it meets three conditions, which GOV.UK sets out as: the event must "be open to all your employees", it must "be annual, such as a Christmas party or summer barbecue", and it must "cost £150 or less per person".
All three, not any of them. A lavish one-off to celebrate a contract win is not annual. An event for the senior team is not open to all employees. And the £150 is the total cost of the event divided by everyone who attends, including VAT, and including transport and accommodation if you provide them.
More than one event a year is fine. In GOV.UK's words: "As long as the combined cost of the events is no more than £150 per head, they're still exempt."
This is the single most misunderstood point in the whole topic, and the Association of Taxation Technicians puts it in one sentence.
The £150 is an exemption, not an allowance, and if it is exceeded, then the whole cost is taxable.
The two words are not interchangeable and the difference is the entire subject. An allowance is a slice you deduct from a bigger number, the way a personal allowance works against your income. An exemption is a condition you either meet or fail, and when you fail it there is nothing left to deduct: it does not shrink, it disappears. Almost every article written about the Christmas party gets this wrong, usually by calling £150 an allowance in the first paragraph and then giving advice that only makes sense if it were one.
That is the profession's reading of it. The rule itself lives in HMRC's Employment Income Manual, and the manual says the same thing in almost the same words.
The £150 is not an allowance to be set against an amount that exceeds that figure.
When a professional body and HMRC's own manual agree that precisely, the point is settled rather than arguable. And the consequence is expensive. A party costing £160 a head does not produce a £10 taxable benefit: the exemption is failed, and the benefit may be the whole £160. On ten employees that is the difference between a small adjustment and a taxable benefit of £1,600 with Class 1A National Insurance on top, all of it turning on the last £10 you spent.
Where there is more than one event, the position is more forgiving than it first appears. HMRC's own example takes two functions costing a combined £180 a head and does not tax all £180: the exemption is set against the better event, and the employee "will be chargeable only on the benefit of £80 for the second event". So if you are going to go over, it is worth knowing which event the exemption is best spent on.
Check the per-head figure before you book, not after. This is the one Christmas number worth working out in advance, because once the event has happened there is nothing to be done about it.
A point the previous version of this article got wrong, so it is worth being clear. Directors are not excluded from the annual function exemption, and whether somebody happens to be on the payroll is not the test.
The condition is that the event is open to all employees. In a company where the directors are the only people working in the business, an annual event for them may still qualify, provided the conditions are met. A one-director company can have a Christmas dinner. It has to be annual, it has to be open to everybody the company employs, and it has to come in at or under £150 a head.
A gift to an employee may be exempt as a trivial benefit. GOV.UK requires all of the following: "it cost you £50 or less to provide", "it isn't cash or a cash voucher", "it isn't a reward for their work or performance", and "it isn't in the terms of their contract".
A turkey, a bottle of something, a store gift card that cannot be exchanged for cash: all capable of being trivial benefits. A £50 note is not, because it is cash. A £50 bonus for hitting a target is not, because it is a reward for performance. And anything an employee is contractually entitled to falls out of the exemption entirely, which catches the well-meaning staff handbook that promises a Christmas gift.
Directors of a close company, meaning "a limited company that's run by 5 or fewer shareholders", have an extra annual cap: no more than £300 of trivial benefits in a tax year, on top of the £50 limit on each individual benefit.
Six £50 gifts across the year reaches the cap. The old version of this article suggested that going over £300 would make everything taxable retrospectively, and that is not right: exceeding the cap does not undo the earlier benefits that qualified when they were given. It is the benefits beyond the cap that fall outside the exemption.
Much tighter than gifts to staff, and the restrictions are the part usually left out. Business gifts are treated like entertaining and are generally not deductible. There is one narrow exception, and a gift has to satisfy every part of it.
Which rules out most of what people actually send at Christmas. A branded hamper is food. A case of wine with your logo on it is drink. A gift card is a voucher exchangeable for goods. HMRC's own examples of what does work are diaries, pens and mouse mats, which tells you how narrow the exception is.
And it is the second cliff edge: go over £50 for one recipient in the period and the whole amount is disallowed, not just the part above £50.
Taking a client to lunch, to a match, or to your Christmas party is not deductible for Corporation Tax. That holds however genuinely commercial the occasion is and however much business comes of it.
The company can still pay for it. It simply does not reduce the tax bill, and the VAT on client entertaining is generally not recoverable either. Where an event has both staff and clients at it, the cost needs apportioning, which is a good reason to ask the venue for a breakdown rather than a single total.
Another correction to the previous version. Personal spending paid for by the company does not automatically create a benefit in kind. Depending on the circumstances it may instead be charged to the director's loan account, and if the balance is cleared in time there may be no tax charge at all.
That is not permission to run Christmas through the company and sort it out later. An overdrawn director's loan account carries its own consequences, including a corporation tax charge where it is not repaid within nine months and a day of the year end, and a benefit-in-kind charge on the interest if the balance goes over £10,000. But "it becomes a benefit in kind" is too blunt to be true, and the right answer depends on how the payment is treated.
It is also the single most common thing we untangle in January, which is the same month the Self Assessment deadline falls. If in doubt, pay for it personally and keep the question from arising.
The last correction, and the one most likely to have cost somebody money. The previous version of this article said directors cannot claim meals when travelling alone and that there are no exceptions. That is wrong.
Subsistence on qualifying business travel, and at a temporary workplace, can be allowable, including for a director travelling on their own. The conditions matter: it has to be a journey that is not ordinary commuting, and a temporary workplace has its own definition with a 24-month rule attached to it.
The mileage on that journey is a separate claim with its own rules, and the approved rate rose to 55p in April 2026. So a director driving to a client two counties away in December and buying lunch on the road is in very different territory from a director buying lunch near their usual office. The first may well be allowable. The second is ordinary commuting territory and generally is not.
If you would rather somebody else worked out which of your December spending falls where, that is exactly what our year-end accounts service is for, and it is considerably easier to do with the receipts than without.
Up to £150 a head may be exempt, provided the event is annual and open to all employees. The figure is the total cost of the event divided by everyone attending, including VAT and any transport or accommodation you provide.
The £150 is an exemption rather than an allowance, so exceeding it can make the whole cost a taxable benefit rather than only the excess. HMRC states that "the £150 is not an allowance to be set against an amount that exceeds that figure". Where there are two events, the exemption is set against the better one and the other may be taxable in full.
Yes, potentially. Directors are not excluded, and whether somebody is on the payroll is not the test. The condition is that the event is open to all employees, so in a company where the directors are the only people working in the business, an annual event for them may still qualify if the conditions are met.
A gift may be exempt as a trivial benefit if it cost £50 or less, is not cash or a cash voucher, is not a reward for work or performance, and is not something the employee is contractually entitled to. All four conditions must be met.
Directors of a close company, meaning one run by five or fewer shareholders, are capped at £300 of trivial benefits in a tax year, on top of the £50 limit on each benefit. Exceeding the cap does not retrospectively tax the earlier benefits that were within the rules when they were given.
Only within a narrow exception. The gift must carry a conspicuous advertisement for your business on the gift itself rather than the wrapping, must cost no more than £50 to that recipient in the tax period, and must not be food, drink, tobacco or a voucher exchangeable for goods. Going over £50 disallows the whole amount, not just the excess.
Client entertaining is not deductible for Corporation Tax, however commercial the occasion, and the VAT is generally not recoverable. The company can still pay for it, but it does not reduce the tax bill. Where an event has both staff and clients, the cost needs apportioning.
It does not automatically create a benefit in kind. Depending on the circumstances it may instead be charged to the director's loan account. An overdrawn loan account has its own consequences, including a corporation tax charge if it is not repaid within nine months and a day of the year end.
Every figure on this page was checked against the sources above on . Rates and thresholds change. If you are reading this long afterwards, check the current position before you act on it.
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