Throw a Christmas party and save tax

Getting into the festive spirit

You might be wondering if you’re eligible to save tax when throwing a Christmas party. Well, you may be in luck! If you own a limited company then HMRC allows you to reward your employees and their partners with annual events (such as a Christmas party or summer barbecue).

How much can I claim per person?

You’re allowed to claim up to £150 per person (including VAT), which can include food, drink, entertainment - and even transport and hotel stays. 

So you could host one huge Christmas party, or combine your winter celebrations with a summer event – as long as the combined total, per head per year, is £150 or less.

Can I claim for partners?

HMRC also allows you to claim for partners who don’t work for the company – so that’s £300 per couple.

What if I'm a one-person limited company?

You can still claim back the cost of an annual party, plus the allowance for a partner applies too. That means you can indulge yourself and your partner on a £300 tax-free festive get-away.

Can I claim back tax from a virtual Christmas party?

In 2020, HMRC confirmed that online events are also eligible for tax relief:

“Having considered the scope of section 264 ITEPA03 (annual parties exemption), we are pleased to confirm that the exemption will apply to the costs associated with virtual parties in the same way that it would for traditionally held parties.

“Therefore, the cost of providing food, entertainment, equipment and other expenses which may be incurred in hosting a virtual event, will be exempt, subject to the normal conditions of the exemption being met.

“It is important to note that the intention of the exemption is to allow for costs of provision which are generally incurred for the purposes of the event itself, and that the event, along with any associated provision, is available to employees generally.“

What’s the catch?

The only small catch is to ensure that you spend no more than £150 per person – if you go just a penny over you’ll lose all of the tax benefits. Other than that, HMRC’s rules are straightforward – you just need to ensure you meet the following criteria:

• The event must be annual and open to all employees in your company

• It’s not an allowance, you’ll still need to claim for an actual meal or event and provide the receipts like any other expense

Full HMRC details on annual parties can be found here.

Conclusion

In summary, If you’re thinking of treating your employees to an annual Christmas party - make sure you keep the cost per head below £150 to be eligible for tax deductions. 

Throwing a party for your employees is a great way to have fun and unwind after the pressures and uncertainty of the recent tax year. So, why don't you dust off your decorations, wrap your secret Santa pressies and put on your favourite festive jumpers - and celebrate tax-free this Christmas.

Remember, if you’re unsure about what you can and can’t claim - it’s always best to check with your accountant in advance to avoid any tax deductions from HMRC.