Expenses and Benefits

Can I Claim the Christmas Party As a Business Expense?

Can I Claim the Christmas Party As a Business Expense?
It’s that time of year again: the seasonal office party in December or for New Year in January raises morale or maybe you’re planning another for later in the year. Whenever in the year the party’s planned, here’s a question that people business owners often raise: can office parties be claimed as a business expense?

In short yes, so long as everyone in the company is invited, the exemption for staff entertainment applies providing that all staff are invited to, e.g. Christmas/New Year/Summer staff parties. To qualify for the exemption the following conditions must be met.

  • An even open to all employees ‒ an exclusive director-only event does not qualify;
  • The cost must not exceed £150 per head, per annum. All expenses must be covered by the per head cost including catering, venue hire, entertainment, decorations, as well as taxis home for staff, and Value Added Tax. The cost per head is the total cost divided by the number of attendees (whether staff or not).
  • Say your business has a New Year party that costs £90 per head and barbecue in the summer that costs £80 per head. Only one of these events will qualify because both together exceed the total cost per head. HMRC example.

Beware exceeding the limit: if the total cost per head exceeds the allowed £150 per annum, both employer and employee are dragged into dangerous tax territory potentially leading to an additional tax and national insurance bill of a further £140 per person! The employee is liable for the tax unless the employer enters into a PSA with HMRC to meet the tax liability, which will be calculated on the grossed-up amount.

Party, party
So party on and take full advantage of the tax-free allowance of £150 per head over a tax year for annual events such as a Christmas party. Just remember that going over that threshold can cost you dear. For more information get in touch with us

About the Author:

Nik Patel , A specialist accountant and tax adviser for freelancers, contractors and small businesses. Expert in business growth and development strategies. A renowned tax expert for owner managed businesses and contractors.