Okay, it’s October, the leaves are turning, and the festive menus are officially out! That means we can finally talk about Christmas without anyone complaining it’s too early.
As a business owner, the pressure is on to book that perfect Christmas do before all the good spots are taken.
But before you put down a deposit, let’s make sure your festive fun is tax-deductible!
Yes, you can treat your team, but to keep HMRC happy, your annual party must meet certain conditions!
(Just a quick note: This advice is for directors of UK Limited Companies. We’ve added a section for Sole Traders at the end!)
What are HMRC’s rules?
🐷 The cost per person must not exceed £150 (including VAT any transport or accommodation).This is an “all or nothing” rule. If you spend even a penny more (£150.01), the entire amount (not just the 1p) becomes a taxable Benefit in Kind.
This means your employee will have to pay income tax on the full amount, and you (the company) will have to pay Class 1A National Insurance on it. That’s one very expensive penny!
🐷 Partners Are Welcome! You can absolutely include employees’ partners. The £150 limit is per head, not per employee. So, an employee and their partner can attend for a combined cost of up to £300.
🐷 It Must Be Open to All Staff You can’t just take the sales team out. The event must be open to all your employees (though it’s up to them if they choose to come).
🐷 It’s an Annual Allowance This is the one that often catches people out. The £150 is an annual exemption. If you had a summer BBQ that cost £60 per head, your Christmas party budget is now only £90 per head. The total of all annual events must stay under £150.
What About…
Sole Directors? Great news! As a director, you’re an employee. This means you can treat yourself and your spouse/partner to a festive outing on the company. This gives you a total tax-free budget of up to £300 (inc. VAT) for the two of you.
Sole Traders? The rules are stricter here. You cannot claim for taking yourself out, as HMRC considers this personal “drawings.” However, if you have employees, you can throw a party for them, and all the same £150 rules apply for them but not you as you are not considered an ‘employee’!
So there you have it! You can now go forth and book that party with confidence.
Happy partying!
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