Helping you prosper
As the festive season approaches, small businesses across the UK are getting ready for their busiest (and brightest) time of year. Orders increase, teams celebrate and seasonal promotions take centre stage.
But while Christmas may bring a rush of activity, one thing that never takes a holiday is VAT compliance.
At UHY, we know how important it is to stay on top of your VAT obligations, especially during the Christmas rush. Whether you are gifting clients, hosting staff parties or running festive promotions, here's how to keep your VAT affairs wrapped up neatly with a bow of good practice on top.
VAT on Christmas gifts: giving without overspending (or overpaying VAT)
It’s the season of giving, but don’t forget that HMRC keeps a close eye on business gifts.
In the UK, if your business gives away items that would normally attract VAT, you may have to account for output VAT on their cost price, unless the total value of all gifts to one person over 12 months is under £50 (excluding VAT).
Example
If you send a £40 (excluding VAT) Christmas hamper to a client, there is no further VAT to pay. But if you send additional gifts totalling more than £50 in a year, VAT becomes due on the total cost.
Our advice
Keep a record of who receives what. It makes your VAT return easier and keeps HMRC happy if they ever review your accounts.
VAT on staff parties: celebrate, but keep it compliant
There is nothing better than a Christmas party to thank your team for their hard work. You can usually reclaim VAT on related costs, provided the event is only for employees.
However, if you invite partners, clients or suppliers, you will need to apportion the VAT and only reclaim the staff-related portion.
Example
If your £3,000 (plus VAT) Christmas event is attended by 30 people (20 employees and 10 clients) you can reclaim two-thirds of the VAT.
Our advice
It is worth tracking staff entertainment separately in your bookkeeping system. This helps ensure your VAT reclaim is accurate and your records clear if HMRC asks for evidence.
VAT on seasonal sales, discounts and bundles
Festive sales and promotions are a great way to drive revenue, but they can complicate VAT.
Key reminders
VAT is charged on the amount the customer actually pays, not the original price.
Multi-buy offers and gift bundles need fair apportionment if they include mixed VAT rates (eg. zero-rated food with standard-rated products).
Pricing systems must correctly handle VAT on discounted or bundled items.
Our advice
Make sure your e-commerce or till system is correctly set up to handle VAT on discounts and mixed-rate items. It’s a common area where small errors can lead to HMRC queries later.
VAT returns and deadlines: avoid a January hangover
The January VAT return deadline can sneak up right after the Christmas break. To avoid penalties or panic:
- reconcile your accounts before closing for the holidays
- double-check your input VAT claims
- schedule reminders for your submission and payment dates
- ensure your Making Tax Digital (MTD) software is working correctly.
Our advice
Treat your December bookkeeping as a ‘pre-New Year clean-up’. It will make your VAT return smoother and your new year brighter.
Charity donations and sponsorships: spreading festive cheer (and staying VAT-smart)
If your business supports good causes during the festive season, it’s important to understand the VAT treatment:
- cash donations: outside the scope of VAT, simple and straightforward
- donations of goods: VAT may apply unless the goods are donated to a charity for resale or export
- sponsorships: if you receive something in return (like brand visibility or event promotion), that counts as a taxable supply and you will need to charge VAT.
Our advice
Keep documentation for all donations and sponsorships. This helps you evidence the correct VAT treatment if HMRC ever reviews your accounts.
Wrapping it all up
At UHY, we understand that VAT is the last thing you want to think about when you are balancing end-of-year sales, payroll and parties. But staying VAT compliant now will save you time, money and stress in the new year.
With a little planning and accurate record-keeping, you can keep your VAT affairs tidy and focus on what truly matters: celebrating your business achievements and preparing for a successful 2026.
If you would like tailored advice on VAT for your business, from festive gifting to quarterly returns, our team at UHY is here to help. Get in touch with Kelly Lewis or your usual UHY VAT adviser to discuss how we can make your VAT as smooth as your Christmas pudding.
Wishing you a merry, profitable and VAT-compliant Christmas from all of us at UHY.
