BUSINESSES are being warned that they face a post-Christmas hangover if they are too generous with festive entertainment for staff.

Chartered accountants and business advisers HLB Kidsons point out that they could face a tax demand if parties are too lavish.

Bill Campbell, director of taxation at the firm's Manchester office, said: "The annual limit you can spend on staff entertainment without incurring tax is £75 per employee.

"If £75 sounds reasonably generous, it is important to note that this is the maximum amount you can spend per head over the entire tax year -- if you want to avoid a tax liability. If you have a Christmas party and a summer barbecue then it is the total cost across the two events you have to consider."

He pointed out that firms also need to consider the VAT regulations.

If staff are able to take husbands, wives or partners, the VAT relating to their attendance will not be reclaimable.

Firms need to keep evidence to prove the proportion of costs that relate to staff members.

Mr Campbell added: "To reduce your tax and VAT liability this Christmas, take a lesson from Scrooge.

"Keep your staff entertainment spending within £75 per head for the tax year and be cautious about inviting wives, husbands or partners."