As a limited company owner, you may feel that the tax system does you few favours.
However, the favourable tax treatment of your annual Christmas party is one benefit available to businesses every year.
There is no specific allowance for a ‘Christmas party’ but HMRC does provide limited tax relief for the cost of holding an ‘annual event’ for your company, providing certain conditions are met.
Outside of this exception, staff entertainment is considered a ‘Benefit in Kind’, and directors and employees would need to pay tax on the amount of the benefit.
What can I claim?
As a company director, you are entitled to provide an annual event for your staff, yourself and your partner and reclaim the costs against the company – provided the cost does not exceed £150 per head (including VAT) per year.
The cost per head can include food and drink, transport and accommodation but most not exceed the £150 limit. The event must also be open to all company staff to attend.
You could choose to hold several events throughout the year or make a claim for a summer event rather than a festive one, but the total claim must not exceed the £150 threshold.
As with all expense claims, you do actually have to hold an event in order to reclaim the costs against your company. You can’t simply make a cash claim for £150.
HMRC states that to calculate the cost per head, 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.