Work Christmas party season is just around the corner and many of you will be starting to plan your festive shindig. So, we thought now was the perfect time to share with you some of the rules around the work Christmas party and the specific conditions that must be met for tax deductions to be claimed.
So, let’s talk festive financial savings and what you as a business owner need to be aware of to keep compliant this Christmas!
How to ensure Christmas parties are a tax deductible expense
1. Open to all
The party must be inclusive – open to all employees! It can’t for example, be a Directors only affair! All employees must be given the choice to attend.
2. Cost per head
You have a total of £150 (including VAT) per person to spend on the work Christmas party. Note, the £150 must cover the combined cost of all expenses incurred for that person, so travel, food, accommodation etc. The £150 applies to all employees and their partner/spouse.
How is the cost calculated?
HMRC states you should, “Divide the total cost of each function by the total number of people (including non-employees) who attend in order to arrive at the cost per head”.
It’s an exemption, not an allowance
What does this mean?
You must spend the money to make a claim. You must actually hold the Christmas party in order to benefit. There’s no exchanging the money for your employee’s favourite voucher I’m afraid!
What happens if the £150 per head is exceeded?
Unfortunately, if the party exceeds the £150 per person then the full amount will be liable for tax and national insurance as a taxable benefit.
3. Annual function
For a staff party to be considered a tax-free event, it needs to be an annual event, which happens once a year. For example, a Christmas do or a Summer BBQ. It’s important to be aware of this as you can’t go claiming for any old knees up and claim it as tax deductible!
So, you can only claim against an annual event, and you do have a limit of £150 but you DON’T have £150 for every annual event you can think of!
You can, however, split the cost across events. For example, if you only spent £50 per head on employees at the Summer BBQ, you can then use the remaining £100 of the per head budget against the Christmas party. You just can’t exceed the £150.00 per head limit.
It’s also worth noting that if the business has more than one location, the work Christmas party, for example, could be held in different places to accommodate all employees. As always the spending limit remains £150.00 per person.
So to summarise to be considered tax free the following rules must be adhered to:
- Must be open to all employees
- Must not exceed £150 per head
- Must be an annual function
As referenced by the Gov website, be aware that the above also relates to virtual parties. With hybrid teams spread out across the UK or even further afield, a virtual party may be the best option for your business but know that the rules still apply!
For more information on this topic head here.
It’s always best to speak to a qualified accountant to get your tax advice so if you’re interested in finding out more about annual events and how to claim, do get in touch today.
FAQ’s related to ‘Is your work Christmas party tax deductible?’
Can you reclaim input VAT on the staff party expenses?
Yes, you can reclaim all the input VAT on the annual event as it relates purely to staff entertaining. It can’t include any client entertaining whatsoever so suggest you invite the clients another time!
Is an annual Christmas party tax deductible for self-employed?
No, sadly not. The above applies to a limited company only and sole traders/self employed do not benefit from the same £150 annual exemption.
Is an annual Christmas party an allowable expense for corporation tax purposes?
Yes, staff entertaining is deductible when it comes to corporation tax.
Is a Christmas party a taxable benefit for the employee?
Yes, so long as you meet the three conditions listed above. However, if any one of these conditions is not met then it will be considered taxable and reportable to HMRC. So make sure you stay within the rules!
