It is that time of year again, before you know it the holiday season will be here – but did you know your company’s annual Christmas party could benefit from a tax exemption?
HMRC provides limited tax relief for the costs of any ‘annual event’ of which a Christmas party is the obvious inclusion. There are certain conditions to be met, however, to be entitled to the exemption. Importantly it is an exemption – not an allowance!
How does it work?
If you own a limited company wishing to provide an annual event, then you can claim it as a deductible expense. To meet the criteria, you must ensure that all employees are invited to attend. This means that it cannot include client entertaining.
An exclusive party for directors would not be tax deductible, as this does not include all employees, for example.
How much can you claim?
£150 per head, including VAT, is available for deduction. This includes partners or spouses, too. All the costs of the party, including transport, accommodation, food, and drink are covered but make sure you keep a thorough record of all receipts.
If the total exceeds £150 per head, even by a penny, then you are no longer able to claim the tax exemption. It is important to carefully consider the budget and total cost of the party.
The VAT incurred on the cost of a Christmas party for your staff is recoverable, however the definition of employees for VAT purposes does not include partners of existing staff or former employees so if your party includes guests then the VAT is not recoverable as it’s not deemed to be for a business purpose.
Lastly, another reminder that this isn’t an allowance – you have to actually spend the money to claim it back.
Certainly extra cause for celebration this Christmas!