Christmas parties – tax deductibility
The Christmas season is well and truly upon us and the inevitable question from clients at this time of year is whether Christmas parties are tax deductible.
The good news is that HMRC gives an exemption from taxation and national insurance for an annual event (does not necessarily have to be a Christmas party) and the amount is £150 per head including VAT. The event must be open to all your employees in order to get the tax free exemption. The overall motive behind the expenditure must be for the benefit of the business, e.g. motivation of the staff.
The annual spend is £150 maximum per employee and if you spend more than that on social functions for employees then there is no exemption and the full amount is taxable and subject to national insurance. Also remember that the cost is the total cost – food, drink, entertainment, transport, hire of venue, accommodation and of course VAT. The cost per head also include any partners of employees who are attending the event. VAT registered businesses can recover the VAT incurred on the expenditure.
However, note that sole traders will not qualify for this deduction as they are not staff but owners of their business. If they have staff then the deduction would be available.
If you stay within the £150 per head limit there is no taxation, national insurance to pay nor any reporting requirement [benefits in kind on form P11D ] nor class 1A NIC liability to HMRC.
So enjoy the Christmas season and make use of the Annual Party Exemption.