The festive period is a great time to reward your staff for all their hard work throughout the year.
Whether you’re a one-person limited company or a company with 50+ employees, you can claim for some Christmas party expenses to be exempt from tax and National Insurance (NI).
As a limited company director you can claim expenses for an annual function, including a Christmas party, up to a certain amount. These expenses will be exempt from tax and National Insurance if the Christmas party meets certain conditions.
What Christmas party expenses can I claim through my limited company?
Expenses that are exempt from tax and National Insurance will relate to the costs of putting on the function, including necessary transportation and accommodation costs as well as VAT.
Firstly, in order to be able to claim any Christmas party expenses, the party should meet the following conditions:
- The cost of the party is £150 or less per head (including VAT)
- It is an annual function i.e. Christmas party
- It is open to all your company employees
If you only have one employee in the company which is yourself, the cost can be exempt from tax and National Insurance (NI) up to £150. So for example, you may go out for dinner as a Christmas treat and receive tax and NI relief on the cost – as long as it does not exceed £150.
If your company has more than just you as the employee and you hold a Christmas party that includes all staff, the expense can be exempt from tax and NI as long as the cost is less than £150 per head and the aforementioned conditions are also met.
Christmas party expenses are an exemption, not an allowance
The £150 per head that you can claim for an annual function is not an allowance – meaning you cannot hold a Christmas party that costs £200 per head and be exempt from tax for up to £150 per head.
If the cost of an annual function, whether it is held at Christmas or not, goes over £150 per head you will need to report this on a P11D form and the expense will subject to tax and NI.
If your business has more than one location, an annual event that’s open to all of your staff based at one location still counts as exempt. You can also put on separate parties for different departments, as long as all of your employees can attend one of them.
What if I have more than one annual party per year?
If your company holds more than one annual function per year (even if it just includes you), it can still claim expenses for events costing up to £150 per head as long as none of the functions exceed £150 per head in total.
Your company held a barbecue in the summer which cost £50 per head. Your annual Christmas party will cost £100 per head. The total cost per head of both functions is £150 – so they are both exempt from tax and NI and do not have to be reported on a P11D.
Your barbecue cost £80 per head, and your Christmas function will cost £100 per head. The total average cost per head for both events is £180, therefore they can’t both be exempt from tax and NI.
However because both events on their own were less than £150 per head, either one could qualify for the exemption. Obviously, you’ll see a greater benefit overall for the Christmas party to be exempt.
If both events had an average cost per head of £150 or more, neither would be exempt and each would be chargeable for tax and NI.
How do I calculate the cost per head?
If there is more than one person in attendance at your Christmas party, simply add up the total cost of the event and divide it by the number of people who attended to arrive at your cost per head.
From all of the team at The Business Hut, we wish you a very happy festive period! We hope you enjoy your social gatherings this year!
For more guidance on social function and parties, head to the HMRC guidance >> https://www.gov.uk/expenses-benefits-social-functions-parties
You can also contact the team for more help with your questions surrounding expenses and exemptions. Email us firstname.lastname@example.org or call the office on 01858 289 189.
Thanks for stopping by!