The Christmas season brings joy and opportunities for businesses to celebrate their teams and show appreciation to clients and suppliers. However, navigating the complexities of VAT during this festive period can be challenging.

Our Tax Director, Steve Martin, provides essential guidance to help businesses maximise their VAT reclaim opportunities while remaining compliant and making the most of seasonal spending.

VAT considerations for team celebrations

Who can VAT be claimed for?

When hosting a Christmas party, businesses can only reclaim VAT for employee entertainment. 

The following groups are not eligible for VAT reclaim:

• Customers
• Suppliers
• Staff spouses or partners
• Former employees

 

Company directors and VAT

Entertainment exclusively for directors or partners is not VAT-reclaimable. However, if directors attend a staff party alongside other employees, VAT can be claimed without exclusions.

Example scenario

A Christmas party with:

• 40 staff members
• 5 company directors
• 45 additional guests (partners, suppliers, customers)

 

In this case, 50% of the VAT could be claimed.

VAT claim limitations

Contrary to other tax regulations, there is no strict £150 per head limit for VAT purposes. Businesses can apportion VAT claims without needing to analyze each line item individually.

Seasonal gift-giving and VAT rules

Businesses can reclaim VAT on gifts that serve a genuine business purpose. Here are the key guidelines:

Gift tax-free threshold

• Maximum of £50 per person annually (excluding VAT)
• Accurate record-keeping is essential

 

Exceeding the gift limit

If gifts to a single recipient exceed £50 within 12 months, VAT becomes payable on the total gift value.

Let’s look at an example

• July: £20 gift
• October: £15 gift
• Christmas: £20 gift
• Total: £55, triggering VAT on the entire amount

 

Acceptable business gifts

Typical qualifying gifts include:

• Boxes of chocolates
• Bottles of wine
• Customer appreciation tokens

 

Important: Personal gifts to friends and family are not considered legitimate business expenses and cannot have VAT claimed.

Need more support?

Hopefully Steve’s tips will mean you can remain compliant whilst treating your clients, suppliers and team this festive season, but if you’d like more detailed advice on VAT compliance, contact the tax team for personalised guidance.