Is a staff Christmas party a business expense? Is it tax deductible?
Providing an annual party for your employees is a great way to thank them for their hard work and Christmas is the most popular time for companies to show their appreciation. The good news is that the parties are exempt from tax and National Insurance, based on three main stipulations:
It must cost £150 or less per person
If you spend any more than £150 (including VAT), then the whole cost is no longer considered an expense. The cost would have to be reported as a benefit on P11Ds for each employee. They would then be taxed on the benefit and you, as employer, would have to pay Class 1A NIC.
So make sure your budget is tight, or all party costs are liable for tax. However, adding guests to the list means you can claim another £150 per person. Make sure employees’ plus ones are family members, as HRMC are very specific about claiming for guests – you can claim for family and partners only.
The cost of the function should include any transport and/or overnight accommodation if these are included as part of the event and you have to include the relevant VAT as this is also included.
The party must be thrown as an annual event
Your party can be any time of year, not just at Christmas, but needs to be seen as an annual event. You can even organise as many annual parties as you like throughout the year, so long as the combined budget is still £150 per head or under. So, you could pay £75 for a Summer party and £75 for a Christmas party and claim for both. Remember to keep to the £150 mark for the combined cost – the rule still applies, no matter how many parties you throw.
And if you go over budget for one of the parties, the whole of that party becomes a taxable benefit. So, if you have a Christmas dinner at £75 per head and then a summer party at £80 per head, you could only claim one of these as a business expense.
It is open to all present employees
All your employees on your payroll have to be invited to the party, you can’t just pick and choose your favourites to guarantee a good time! In particular, a party that is just for your senior team or directors is not considered an allowable expense in this case. Contractors and customers are not considered as eligible – even if you consider them to be part of your team. If you invite them, it ceases to be seen as a staff event. Interested in learning more about expenses and benefits? Get in touch with us to discuss them in more detail.
