Can sole traders claim tax expenses for Christmas nights out and customer gifts?

Come November and many of us start to think about Christmas. When you’re self-employed, a certain panic can arise over whether you’ll manage to get everything done before the Christmas holidays. Gulp.

It’s also a time for celebrating another year in business, partying and showing appreciation to those who work for and with us, as well as loyal customers, of course, without whom there would be no business.

Festive nights out, sending out Christmas cards and giving Xmas gifts can prove expensive for your average sole trader, because it’s a big additional cost. So, what are the rules about claiming tax expenses when it comes to Christmas nights out, entertaining clients, sending cards and giving Xmas gifts?

Allowable expenses: Christmas parties

While limited companies are allowed an exemption from tax, National Insurance and reporting for an annual event such as a Christmas party, providing it’s open to all employees and costs no more than £150 per head, sole traders get nothing. Bah, humbug.

You’ll either have to pay for your own Christmas night out or hope that one of your suppliers or customers invites you to their Christmas do. Entertaining is not an allowable expense for sole traders or members of an ordinary business partnership. That said, budget permitting, you might still consider taking a good client out for a Christmas meal to be a worthwhile investment for the new year and beyond.

Allowable expenses: Christmas decorations

Sole traders can only claim Christmas decorations as an allowable expense if they put them up in their usual place of work – as long as this isn’t their home. If you’re a sole trader who works from home, HMRC would view buying Christmas decorations as a personal rather than commercial expense, because it was not “incurred wholly and exclusively for the purposes of the trade, profession or vocation”.

Need to know! Christmas cards and postage can be claimed as an allowable expense as long as they clearly advertise your business, because then they’re a marketing cost.

Christmas gifts for clients, customers and staff

Business gifts given to clients or customers – at any time of year – are not normally tax-deductible expenses, because they’re considered as entertaining. However, Xmas gifts given to clients or customers can be allowable as a marketing expense if they’re worth less than £50, they clearly feature an advertisement for your business (on the gift and not just the packaging) and they’re not food, drink or tobacco (which are classed as entertainment) or a voucher that can be exchanged for goods or cash.

If you have employees, you can buy them a Christmas gift worth less than £50 without having to report it to HMRC or it be subject to Income Tax or National Insurance, because it is considered a “trivial benefit”. If you pay a Christmas bonus, whether in cash or vouchers, it’s taxable.

Need to know! Just in case you were wondering, no matter how hard you’ve worked this year or what level of success you’ve achieved, you cannot go out and buy yourself a nice Christmas gift from your sole trader business.

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Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.