Can I claim my Christmas party as a business expense?

Whether you love or hate them, Christmas parties are a great way of rewarding your employees (and yourself) for a year of hard work. You’ll be happy to know that HMRC provide added incentives to employers wanting to put on a Christmas party.

Christmas parties are exempt from National Insurance and tax so long as you follow the following strict rules:
•    The party must be open to all your employees and must mainly consist of employees.
•    The cost cannot exceed more than £150 (including VAT) per person.
•    The party must be an annual event.
•    You can also claim up to £150 (including VAT) per person for a plus one for each of your employees so long as they are a family member or spouse.

It’s worth noting that shareholders are not included in the exemption unless they are employees or directors. Also, the £150 limit is not an allowance – so if the cost per head is £160, then the whole amount is taxable not just the £10 excess.

So how should you treat the expense in your accounts? We would recommend that you show this expense separately in your accounts as it is a ‘staff benefit’ and therefore cost of ‘staff welfare’.

What about the VAT position? Provided it is ‘staff welfare’ you can claim all the VAT on the cost of the function. Be careful to calculate the cost per head at your function as HMRC could impose a penalty if they feel you have been negligent and there is tax due.

If you have any specific questions regarding your staff Christmas party costs, please do get in touch with one of our branches and we would be happy to advise you further.

Source: Sun, 27 Nov 2022 19:31:42 +0100