Which businesses can claim a Christmas party tax exemption?
You must be a limited company in order to qualify for this tax exemption. Sole traders and partnerships are not included.
Is it just for Christmas?
No, this is not specifically for Christmas. HMRC’s regulation that defines the rules is called ‘Expenses and benefits: social functions and parties’. The exemption is for social events that employers hold for their employees, costing up to a specified ceiling. Businesses often make this an annual event, such as a Summer Ball or Christmas Party, but the allocated money can be divided between multiple events across the year.
It does have to be an ‘annual’ event, not a one off celebration, like your business’s tenth birthday. The occasion must be something that is repeatable year-on-year. This is why many businesses opt for a seasonal event, like a Christmas Party.
What is the maximum spend for a work social event?
Employers must only spend £150 per head to remain within the boundaries of the tax exemption. The occasion must be open to all employees. The cost of one additional guest is also allowable, up to £150 per person, and they must be a partner or family member.
This could be a total maximum spend for one event, or several events that cost £150 per head in total. For example, four events costing £37.50 per head each.
This is defined by HMRC as a tax exemption, not an allowance. So if cost go over the £150 threshold, even by £1.00, the whole cost will be subject to usual taxation.
Does this mean that all employees across several locations must come to one party?
No, if you operate out of different locations, then each site can have its own party and still retain the exemption. Even within one building, different departments or teams can have their own event. The main objective for HMRC is that it is obvious that employees are able to get to one of the events.
It is worth noting that shareholders are not included in the exemption unless they are also a director or an employee.
How do I make a claim for this tax exemption?
Keep a note of your costs, everything from food to entertainment and transport. Divide this by the number of people attending and this is the amount of tax and NICs exemption you can claim per person – as long as it stays under £150 each. Pass this to your accountant to analyse with your other figures.