Claiming Christmas Parties Allowance Expenses

With Christmas fast approaching, we thought we would let you know about a little known tax loop hole regarding Christmas parties…..

HM Revenue & Customs allow a tax exemption of £150 per employee for Christmas Parties. So an employer can spend up to £150 per employee without having any tax burden on the employee, or business, whilst still claiming a deduction of the full amount for corporation tax.

There is no restriction to the size of business so this exemption applies even if you are the only employee, or if the total employees are made up of you and your spouse! What’s more, it stretches to guests meaning your spouse or partner can come along too – tax and NI free!

A ‘Christmas party’ does not necessarily have to constitute a party; it could take the form of a meal or stopover in a nice hotel. However, care needs to be taken when working out the total cost per head that it stays under the £150 per head tax exemption. If the cost per head exceeds this exemption by £1, then the full amount becomes a benefit in kind for the employee and therefore tax and NI would be due.

The cost per head is the total cost of:

    • the party/function and
    • any transportation or accommodation incidentally provided
    • Divided by the number of people attending.

It is sometimes hard to know in advance what the total cost per head will be (for example if you have not factored in after dinner liqueur etc), however there is an easy way to avoid this:

    • the restaurant/hotel etc should be booked in the company name and if there’s a danger of the £150 limit being exceeded the director should be authorised to pay the bill personally and claim back only up to £150 per head from the company – supported by receipts.

If this is something of interest to you, please feel free to contact us with any further queries you may have regarding the above.