Staff Christmas party for limited companies: what can you claim?
Posted on 28th November 2019
The annual Christmas party is a great way to show appreciation to your members of staff for their work over the year. But the expense can put companies off organising them and it isn’t really in the Christmas spirit to expect their employees to pay for themselves.
However, as a limited company owner, you may not be aware but there is one small benefit, courtesy of HMRC, that may make it worth your while to throw an annual event for staff.
There is no specific ‘allowance’ for a company Christmas party. However, HMRC states that if you are a limited company then you are able to claim limited tax relief on your annual party.
The cost of the party can be recorded as a company expense, and therefore be excluded from your annual profit. This will then decrease the amount of corporation tax you will pay at the end of the tax year.
The parties will be exempt from tax & National Insurance.
So, what are the conditions that need to be met by companies in order to qualify? The major conditions and rules to note are:
The event must be open to all company staff to attend (and must be mainly attended by employees)
Shareholders are not included in the exemption if they are neither employees nor directors
The party cannot cost more than £150 per person (including VAT)
An additional £150 per head cam be claimed for a plus one for each employee – providing that they are either a partner or family member
You do actually have to hold an event in order to reclaim the costs, you cannot just make a cash claim for £150
Some important things to note are that the cost cannot exceed £150, even by 1p, otherwise all the costs (not just those over £150 per head) will then be taxable as a ‘benefit in kind’.
The cost per head can include food and drink as well as transport and overnight accommodation and the cost of the party is fully inclusive of everything from start to finish.
It may be that you wish to hold a few events for staff during the year, such as a summer party, but the total amount claimed for all events must not exceed the threshold of £150 per head. In order to calculate the cost per head, HMRC states that you should divide the total cost of the function by the total number of people (including non-employees) who attend in order to arrive at the cost per head.
You cannot reclaim the VAT element of the event expenses if only the directors and/or their partners attend the event. According to HMRC this is because the goods or services are not used for a business purpose.
However, limited companies are able to reclaim the input VAT if directors and partners attend a staff party with other employees. HMRC accepts that the tax is input tax and is not blocked from recovery.
This exemption was introduced in April 2003 and as with many other tax rates and bands it has not increased with inflation. If it had done so, limited company owners would now be able to claim approximately £215 per head for the yearly Christmas party!
For more in depth information from HMRC with regards to taxable benefits for company events click here.
Next steps
Feel free to get in touch to discuss further – book a call with Nicola, or drop us an email.
Written by
Nicola J Sorrell
- Effective Accounting
Founder | Xero Champion | IR35 Expert
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