HMRC offers a tax exemption for employee entertaining where the cost of a corporate party does not exceed £150 per head, for all attendees including clients and guests of employees (including VAT).

Riz Wasti, head of 2E Accountants warns:  ‘It's worth sticking closely to the Christmas party budget, then, for going over this amount by even a fiver makes the whole cost of the event taxable as a benefit in kind.’

If a party excess does result in an overspend of the £150 limit, then the amount exceeded must be reported as a benefit on the employee's P11D, or the employer can opt to pay the tax as a PAYE settlement agreement (PSA).

To add to the festive cheer, Wasti points out that Christmas cards to clients and prospects are considered an office expense and are deductible, provided that the cards carry a clear advertisement for the company sending them. Gifts from grateful clients under £50 in value are tax-exempt, but anything over will need to be reported on employee’s P11D and tax paid.

Anita Monteith, ICAEW tax faculty technical manager, said: 'A Christmas party can be an excellent way of boosting staff morale as days get shorter and can make employees feel valued for their hard work, as well as encouraging productivity. Christmas and gifts from the taxman come but once a year - make sure you take advantage.' 

However, the institute has words of caution for employers keen to shed the image of being a Scrooge, pointing out that if a company spends as little as one penny over the £150 limit, which includes VAT, the full amount spent will become liable to income tax and National Insurance for both staff and employer alike.

In addition, ICAEW is reminding employers who want to make Christmas special with gifts to employees that these are taxable. Cash presents, such as Christmas bonuses or vouchers redeemable for cash, also have to have tax and national insurance contributions paid through the PAYE system. The alternative for employers who want to give, but without a tax charge attached, is to set up a PAYE Settlement Agreement with their tax office.

The advice is likely to prove useful, as analysis in PwC’s latest Global Economy Watch report shows that UK consumers spend more than those in any other major Western economy over the Christmas period. The UK shopper’s average spend is around $1,100 (£700) per person, a third more than shoppers in the US.

Richard Boxshall, senior economist, PwC, said: ‘The UK and Germany are the only major Western economies where Christmas spending has bounced back to exceed pre-crisis levels in real terms. Elsewhere, some of the scars of the financial crisis are still visible: US Christmas spending remains 10% behind that of 2007 in real terms. And in Greece, real per person Christmas spending dropped by around 60% in the six years to 2013.’

At the top end of the market, Deloitte has researched European luxury shopping habits over the Christmas period and found that consumers across Europe will spend just over €9,000 (£7100) on gifts such as designer watches, jewellery and this festive period. They will spend an average of €4,400 (£3472) on others, as well as €4,700 (£3708) on themselves.

Although most purchases of luxury goods are still made in-store, 38% of UK luxury consumers said they did the majority of their Christmas shopping online, while almost two thirds (60%) used a combination of in-store and online buying and browsing.

In the UK just one in 10 (12%) shopped exclusively in-store, compared to one third in the continental European markets, indicating luxury consumers on the continent place more value on the touch and feel of the goods, as well as staff knowledge and service.