Is Your Office Christmas Party Tax Deductible?

It’s perhaps the most anticipated part of the business year. The event that has tongues wagging well after the wine ran out and the terrible dance moves from Mr Brightside have ceased. It’s the Christmas party! Whether you are a small business or a large corporation, it’s a time to enjoy for all involved. Employees, bosses and colleagues all united in the tradition of Christmas. However, there is one question that crops up every year. Is your office Christmas party tax deductible? Let’s find out.

Whether you love a Christmas party or are a tad Humbug towards the whole idea, the accounting side of things remains the same. The law is the law and it needs to be adhered to. You might be as shocked as Bob Cratchit on Christmas Day, to know that HMRC aren’t total Scrooges after all.

Christmas parties are exempt from tax and national insurance for limited companies putting on the event, however there are rules to stick to.

The party must be an annual event – a Christmas party or perhaps a summer palooza.

The event must be open to all employees and made up of mostly employees.

Shareholders are not included in the exemption, unless they are employees or directors.

The party cannot cost more than £150 per head, including VAT.

One thing to remember is that this is only an exemption, it is not an allowance. Stay within the £150 per person (including VAT!) and you’ll be fine. Go over that amount and the entire cost will be  taxed as standard. This £150 spans the full year. If you are hosting more than one event in the year, the £150 has to span the entire 365 days. Go over that and you’ll relinquish the use of that exemption. One of the bonus points to note is that you can claim an extra £150 per head for plus ones, as long as they are partners or family members of the member of the business.

One thing to note is that the exemption hasn’t increased with inflation since it was introduced in 2003. If it has you’d be able to claim around about £215 per person. So whilst you might not get as much for your money as you perhaps should do, it’s still not something to be snubbed. In uncertain times, businesses are struggling but keeping staff morale high is important. The staff Christmas party can be just the ticket for keeping staff on board and working hard.

Some of the rules regarding what is and isn’t allowed to be an expense are confusing. If you need help, speak to Clare at Bruton Young Bookkeeping who can explain things simply and easily.

Shop around for the best price at the best place. Hotels and businesses putting on festive functions need your business so don’t be afraid to question to price if you’re not happy. Some places often give you a free place for every X amount that book. Be knowledgeable about your finances this festive season so you can relax and enjoy the staff Christmas party.