If you’re thinking of throwing a staff Christmas party, then there are a few things you should know beforehand…

There is no specific allowance for a ‘Christmas party’ as such, however, HMRC does allow companies to claim an annual event as a legitimate expense providing, they meet certain conditions. Here we explain the rules to ensure your Christmas party is tax deductible.

First and foremost, the event should be an annual occurrence and not just a ‘one off’ whether it be a Christmas party or a summer barbeque.

The event must be open to ALL staff. If the event was only open to Directors, then this would not be classed as exempt. If you have staff at multiple locations, then you may hold events at each location as long as all of the staff in each location are invited.

The cost per head MUST NOT exceed £150 including VAT. This can cover expenses such as travel, accommodation, food etc. If you exceed the £150 limit, then HMRC will class it as a benefit in kind and it will no longer be exempt. You must also remember that the £150 is an exemption NOT an allowance which means if this limit is exceeded then the full amount would be chargeable. See examples below:

To calculate the cost per head, HMRC states that you should divide the total cost of each function by the total number of people (including non-employees) who attend in order to arrive at the cost per head.

Example 1:

A company holds one annual event for all of its staff and the average cost per head is £130 (inc VAT). This includes travel, accommodation, food and drink. This would be classed as exempt.

Example 2:

A company holds one annual event and the average cost per head is £155 (inc VAT). This exceeds the limit and would be classed as a benefit in kind so is a chargeable expense for the full amount.

Example 3:

A company holds 2 annual events for all staff. The first event has a cost per head of £100 and the second event has a cost per head of £80, this brings the total cost to £180 per head. Due to both events exceeding the £150 limit only one of them can be exempt, in this example the first event is exempt (however because neither event exceeds the cost per head limit either of them could be classed as exempt). The second event will be taxable on the total amount.

For employees who attended:

– both events, they will be chargeable only on the benefit of £80 for the second event

– only the first event, there will be no chargeable benefit because that event is exempt

– only the second event, they will be chargeable on the benefit of £80.

Example 4:

A company wants to hold an annual event for Directors only. This function is not open to all staff and the cost per head is £100 per person. Although this event doesn’t exceed the £150 limit it is not covered by the exemption because it is not open to all staff. The full benefit is chargeable on directors attending.

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