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22nd October 2019
It will soon be that time of the year again, stockings will start taking their place on desks, fairy lights will grace the office walls and the highly anticipated office Christmas party will soon be here. Before the mulled wine fuelled chats and embarrassing dance moves happen on the dance floor, the question that most business owners are left wondering is, “are Christmas parties tax deductible?”
Yes, is the simple answer. Your limited company can claim back on its festive soiree for corporation tax purposes. Entertaining your employees, so long as it isn’t incidental to entertaining others, is deductible for tax purposes.
There’s your quick answer, however, we thought it would be helpful for some if we investigated this topic in a bit more detail.
So, we’ve already said that staff Christmas parties do qualify as a tax-free benefit, but it isn’t as simple as that. There are a few conditions that you must meet before you go screaming Maria Carey’s, ‘All I want for Christmas’ from the rooftops:
As a director you may provide an annual event for yourself, all staff and their spouse or partner, then reclaim the costs against your company. The Christmas catch? It must not exceed £150 per person. That’s £150 including, accommodation transport, food and drink, etc. If the total per head is £150.01, you’ve exceeded the threshold and won’t be eligible for tax deductions.
If you have thrown a company gathering for every possible holiday throughout the year, then the total cost for these events must stay within the £150 per head in order to claim back. So, you can claim on the summer and winter ball if you spent £75 per head on each event, alternatively you can go for £150 per head on both events and then claim against either the summer or winter event.
As with all expenses claims, you must hold an event in order to claim it back, you cannot simply make a cash claim for the £150 and not have a party. To calculate your cost per head the HMRC advises to divide the cost of the event by the number of attendees (including any liabilities, sorry plus ones).
According to HMRC VAT Notice 700/65, if only directors and/or their partners attend the event, then you cannot reclaim the VAT element on your party expenses. Stating “this is because the goods or services are not used for a business purpose.”
However, you can reclaim the input VAT if all staff members attend the party. That means that the directors must attend the same event as all other staff, if you want to claim back your VAT. HMRC says: “we accept that the tax is input tax and is not blocked from recovery.”
The £150 spend is an exemption criterion not an allowance. You must spend the money in order to make a claim. HMRC will not be supplying the office with mince pies and candy canes, you’ve got to ‘ho ho ho’ and get them yourself.
If you are a one-man band and don’t fancy turkey with all the trimmings on your own, you can’t claim for the £150 in cash or vouchers. Sorry, no self-indulgent gift for you.
Understandably you are feeling generous in this time of festive cheer and you may want to treat your loyal clients and employees’ to gifts to show your appreciation.
The gift must bear a clear advertisement for you company. It cannot be food, alcohol or tobacco, or any sort of voucher that can be exchanged for any of these items, even if your gift is a gingerbread house plastered in your logo.
If your chosen gift is over £50 then HMRC will disqualify the entire amount and not just the amount over the £50.
If you are looking to gift one of your own products, and they are given away during normal business hours for promotional purposes then you will get a tax deduction for the cost of your product.
You will also be happy to know that in the season of good will, Christmas gifts to charities are also tax deductible.
When it comes to your employees it is simple, they’re taxable. Gifts of money, eg the annual bonuses, must be put through the payroll system and taxed in the usual way. Any other gifts must be included on the P11D form.
In summary, your staff Christmas party IS tax deductible, but you must fit the criteria. You cannot exceed £150 per head by a single penny else you will not be eligible for tax deductions. Blessing your employees with gifts for Christmas is tax deductible under £50, and no doubt highly appreciated, but remember no food, drink or tobacco and it must be obviously branded.
So, let’s get the tree out of the cupboard and dust off the tinsel. Pour the Baileys and let’s get Secret Santa underway, because this party isn’t just any party, it’s tax deductible.
If you want to know more or would like some further information about tax deductions for your Christmas party, please fill in your details below and one of the team will be in touch. Alternatively, give us a call on 0333 200 0714.
have you read our previous post?