With Christmas fast approaching and the festivities getting into full swing, you may be considering hosting a Christmas party to end the year. Continue reading to discover the rules surrounding Christmas party expenses and what you can claim when holding an annual event.
Is my annual Christmas party a deductible expense?
As a limited company director, you are entitled to provide an annual event for yourself, any staff you employ, and your partner and reclaim the cost against the company. The event must be held annually, for example, a summer or Christmas party and must be open to all staff to attend.
Please be aware that shareholders are not included in the exemption if they aren’t directors or employees. But you can claim an additional £150 per person for a plus one for each employee, as long as they are a partner or family member.
The cost per head can include food and drink, accommodation and transport – but must not exceed the £150 threshold, even by a penny. This is because this is an exemption and not an allowance. For example, if your annual event costs £152 (or more) per person, you cannot claim the first £150 as a business expense as the whole event will be taxed as usual.
To calculate the cost per head, HMRC states that you should ‘divide the total cost of each function by the total number of people who attend (including non-employees) to arrive at the cost per head.
Can I hold more than one annual party each year?
Yes, it is possible to hold more than one annual event per year, as long as the expense per person does not exceed £150 in total for the year. For example, you could claim an annual summer party costing £70 per person and an annual Christmas party for £80 per person.
Virtual Christmas Parties are eligible for the annual function exemption
In 2020, due to the coronavirus pandemic, HMRC confirmed that virtual events would also qualify for the exemption. Providing that “all other conditions are also satisfied as the exemption applies to allow for costs of provision which are generally incurred for the purposes of the event itself.”
For example, all employees must be invited to the event, and each could be provided with a hamper consisting of some food and drink to be enjoyed by the attendees during the party.
As the event is being held virtually, it is recommended you find a way to prove how many people attend the event, as HMRC may request evidence that the party qualifies for the annual function exemption. Hosting a structured online event, such as a Christmas quiz alongside providing hampers, will demonstrate that the party qualifies – as long as the cost per head is within the £150 exemption.
How do I claim Christmas party expenses?
If you are a client of Bluebird Accountancy and are interested in finding out more about Christmas party expenses, please speak to your Account Manager, who will be happy to discuss this further with you.
If you are interested in finding out more about our limited company accountancy service, please get in touch with us today on 0808 301 2389 or complete the short form on our website, and a member of the team will be in touch!