Which expenses can the self-employed claim at Christmas?

If you plan on celebrating as a business, then you may be able to claim a tax allowance. But this is only available to those trading as a limited company, rather than as a sole trader or partnership.

For any self-employed business with employees, there’s an exemption from tax, National Insurance and reporting for annual staff functions, as long as the cost doesn’t exceed an allowance of up to £150 per person. This can be used for the Christmas party, or spread across more than one event. But if the total bill exceeds the allowed amount, the whole cost becomes taxable. There are also slight complications if one member of staff is acting as a host for the evening, for example.

You can also claim an additional £150 for guests of employees, whether it’s family or friends. And it also applies to online or virtual parties. More advice is available via Gov.uk.

The rules are different if your business only has directors, and no employees. In this case, there’s no tax relief available, unless the entertainment takes place when you’re away from your usual place of work, such as on a business trip that you would have taken anyway.

And if you’re hosting a Christmas party for clients or customers, this is considered business entertainment, and therefore it’s not an allowable expense.

If you’re planning to thank staff with a present that doesn’t have a direct cash value, then HMRC might accept it as a trivial benefit which is defined as a small gift given for personal reasons, rather than those relating to employment. 

But if you’re paying a monetary bonus, this will be treated the same way as regular earnings. And if you offer a gift with a cash value, this will also need to be reported either as part of your employee’s earnings or on their P11D form.

Client gifts can be recorded as a business cost, as long as you’ve not spent more than £50 per year on any one client, it contains a conspicuous advert for your business, and it isn’t food, drink, tobacco, or a voucher that the client can exchange for goods or cash.

It’s possible to claim tax relief on Christmas decorations if you’re working from an office, under day-to-day running costs. But this isn’t an option if you’re working from home, even if you have a dedicated workspace.

Being able to claim expenses relating to Christmas costs shouldn’t determine whether or not you celebrate the festive season. It’s important to also consider whether a client party might bring in more business revenue than it would cost, or whether paying for a tree in your home office will make it a better place to spend time if you’re working over the Christmas period. 

But it’s important for anyone self-employed to know what costs and expenses need to be reported, and whether it’s possible to claim tax relief or other support to offset the expenditure. And for information covering the whole year, we have sections dedicated to Financial Wellbeing, and Self-Employed Tax, in our Advice section.

The above information is for information purposes, and should not be relied upon as professional tax advice. For dedicated advice tailored to your individual situation, you should speak to HMRC, or a professional tax advisor or accountant.