With December here and the Christmas spirit in full swing, many businesses are getting ready to dust off their dancing shoes and dance the night away at their annual Christmas do. But before you go planning the big affair, it’s important to know what Christmas business expenses are claimable or exempt.
Now nobody wants to be the Grinch at Christmas and even the taxman cannot resist spreading a little festive cheer. So, when it comes to throwing an office Christmas party, HMRC offer incentives to limited companies (unfortunately not sole traders) who are putting on a Christmas event to reward their employees. Office parties are exempt from both tax & national insurance, as long as the boss follows the strict rules in place. Allowing businesses to treat their employees to a well-earned Christmas celebration, as an allowable business expense. And without employees suffering a benefit in kind tax charge.
Breakdown the Rules
Everything in moderation is the taxman’s rule for Christmas. As long as the party remains reasonably modest and within the capped budget a business can treat their employees and stay clear of the taxman’s naughty list. At Defacto-FD we’ve made things simple and broke down all the rules and implications your business needs to know, to enjoy a guilt free Christmas celebration.
Budget
The first mistake many business owners make when they think they are flying under the HMRC radar is to make their function overly elaborate. For your businesses Christmas party to qualify for exemption, it requires the functions cost per head to remain below £150. The £150 figure must cover all function expenses, including travel and accommodation if provided.
Now, don’t worry it’s not all tight purse strings and penny counting. The exemption states the capped limit to be £150 per head, not per employee. Meaning the invitation can be extended to plus ones, including partners and or family members.
All but once a year
However, the taxman will allow for more one annual event to be covered under the exemption. It doesn’t have to be a toss-up between that summer BBQ or Christmas blowout, as long as the two functions combined fall under the per head cap of £150.
- £90 for Christmas and £60 for Summer = in budget
Our Top Tip to Remember – Exemption not an allowance
It’s important to remember that this exemption is not a tax-free allowance. The consequence of overspending on your function, will result in disqualification from exemption. If the cost per head comes in at as much as £151 (£1 over), you will no longer be able to claim any of the £150 as a business expense. The whole cost of the event will be taxed as normal, not just the excess figures.
- £90 for Christmas and £61 for Summer = £151 allowance exceeded! = £61 for BBQ is not allowable
Welcomes one and all
Christmas is all about spreading love and joy to one and all, and for this exemption to qualify that’s exactly what a business must do. For the qualification of this tax exemption there must be an open invite to all staff, across the board.
For those businesses with multiple offices you may be questioning the logistics of fitting all your staff in to one Christmas party. However, there is a loophole here that could save a very tight squeeze. The legislation states all staff in a particular location must be invited. Meaning if you have multiple site locations, one office in Glasgow and another in Aberdeen, it is permissible to hold an event at only one location, or some. As long as all staff at each location are invited.
Highlights
- The function must be an annual event, such as Christmas
- The party cannot exceed £150 (including VAT) per head.
- All employees must have an open invite to attend.
- You can claim additional £150 per person to cover plus one invitation for each employee, providing they are a family member or partner.
And with all that in place all that’s left to do is enjoy your Christmas night and celebrate all of the hard work achieved this year. And with the taxman on side It really is the most wonderful time of the year.
If you have any questions on taxable employee benefits or how to avoid benefits of kind tax charges, get in touch. Or in need of advice for how to best file such expenses, our team of experience-chartered accountants are on hand to offer all the accountancy support you could need.
