With the festive season almost upon us and the party season in full swing, it’s that time of year to re-visit the rules on Christmas parties and tax relief!
Have a staff celebration before your company’s year-end and you can spend up to £150 (including VAT) per employee, directors included. It’s important that all staff members are invited. If not, the party exemption won’t apply. And be careful about inviting (and applying for the tax relief for) subcontractors, as that could imply you’re treating them as employees rather than self-employed individuals.
Subject to satisfying the above, the cost will qualify for corporation tax relief. It’s usually referred to as the Christmas party allowance. However, it can be used at any time of year – not just Christmas.
Another point to note is that this allowance doesn’t have to be spent all ‘in one go’ – so a couple of meals out for you and your staff at no more than £75 per head (including VAT) will qualify.
If you spend £100 per head (including VAT) at Christmas and another £45 per head (including VAT) on a summer event – that’s fine, both will qualify. But if the summer event cost £60 per head (so £160 on Christmas and summer combined), you can’t have both. The sensible thing to do here would be to put the Christmas event through as it’s the more expensive of the two.
Each employee and director can invite a guest, and this too will qualify. The £150 per head must include the cost of any travel, accommodation and venue hire which your company pays for too – in other words, you can’t claim for the £150 and then claim for the cost of travel, accommodation or venue hire on top of that.
Note that the £150 is an exemption and not an allowance. If it turns out that you spend £160 per head, you’ll need to report the £160 (possibly £320 if the employee has invited their partner) on a P11D at the end of the tax year and your employee will have to pay income tax on it. So, make sure it’s below the £150 threshold.
If you’re heading out for your annual staff Christmas party, have a great time!
