Traditionally, Christmas and New Year are all about spending time with friends and family. But for many businesses, the holidays are also an ideal time to celebrate with colleagues, employees, and clients – which can often lead to a number of additional costs.
Fortunately, some of these costs count as allowable expenses, and this blog post takes a look at which of your Christmas expenses can be deducted from your taxable profits.
Are Christmas parties allowable expenses?
While the annual Christmas party might leave you with a slight headache the next day, there is an upside: Christmas parties are often tax exempt.
Christmas parties for staff
In order for a staff party to be considered as an allowable expense, it needs to:
- Cost less than £150 per employee
- Be held annually
- Be open to all of your employees.
It’s important to note that the £150 limit includes every expense related to the party (e.g. venue, transportation, accommodation), as well as VAT. Furthermore, this budget is an exemption, not an allowance, which means that if your party costs more than £150 per person, it falls outside of the scope of these rules, and the full event would therefore be taxable.
You should also bear in mind that you can only have one tax-free celebration per tax year – so if you had a summer barbeque and a Christmas party, only one of these events would count as an allowable expense.
HMRC has a more detailed explanation of which celebrations might be allowable expenses, what you need to consider if you have multiple sites or offices, and the impact Christmas parties might have on payroll if it doesn’t meet the requirements to be considered an allowable expense.
Christmas parties for clients or suppliers
The holidays can be a great excuse for networking – unfortunately, if you throw a party and invite clients or suppliers, this usually isn’t considered to be an allowable expense, so you would probably need to pay tax on events open to anyone other than your employees and their families.
Are Christmas decorations allowable expenses?
Whether or not Christmas decorations count as allowable expenses depends on where your business is located.
If your business runs out of an office, shop, factory, or any other location that isn’t your home, your Christmas decorations are likely to count as allowable expenses.
You can't claim for personal expenses, which means that you won’t be able to claim tinsel or baubles as allowable expenses if you run your business out of your home.
Are Christmas bonuses allowable expenses?
If you employ other people, you might want to reward your staff for their hard work throughout the year – and this often involves giving cash bonuses.
According to HMRC, staff expenses are tax deductible, including cash bonuses. However, while bonuses might be deductible from your taxable turnover, there are a few other tax-related issues that you’ll need to take into account if you give cash bonuses at Christmas.
If you give your employees a cash bonus, the money will be considered earnings, which means that the amount you give will be added to the rest of their pay and will be subject to PAYE and National Insurance.
Are Christmas or New Year marketing campaigns allowable expenses?
Christmas and New Year are key times of year for many businesses (especially if you’re a retailer or work in hospitality). Many businesses therefore choose to amp up their marketing and promotional efforts in the build-up to the festive period.
HMRC lists marketing expenses as examples of allowable expenses, so if you give your website an update or increase spending on advertising or free samples, your increased marketing expenses would be allowable.
Recording Christmas expenses with Debitoor invoicing software
Debitoor invoicing software makes it easy to track your expenses throughout the year.
If you upload a photo or PDF of a receipt or purchase invoice, the software will automatically fill in some of the most important details. Debitoor also sorts your expenses into different business expense categories, helping you understand where you’re spending your money
Find out how to record an expense with Debitoor invoicing software, or try Debitoor for free.