What are the tax allowances for Christmas parties?

Nov 21, 2022 | Business expenses

The tax system can wear you down and confuse you. But it’s Christmas soon, so bun feeling sad. Let’s talk about parties.

From Digital to World Headquarters, Newcastle’s vibrant nightlife spaces could be vital to you and your business when it comes to planning your Christmas parties. You might even avoid paying some tax.

There’s no specific allowance, but HMRC will provide tax relief against certain criteria if you’re holding an event.


What’s the relief?

A £150 limit per head will allow you to provide an annual event for you and your staff, and then reclaim these costs against the company.

It works for virtual events too – the pandemic helped to update this, so don’t worry if you can’t get everyone together.

Staff treats are usually classed as a benefit in kind, therefore affecting your staff members individually. They would be taxed on the value of benefits they receive each year. National insurance will also have to be paid on the value of the benefits they receive each year, both by them and you as the employer.

Just be aware – don’t exceed the £150 margin, even by a few quid. You’ll be taxed on anything over. But anything can be included for the event. Scran, bevvies or lifts to the venue.

Make sure you invite everyone in the business – it’s not a staff event if you pick and choose who can come.

If you want to spread your event across several events, you can do so too. Provided you stay within the budget. It’s up to you.

How do I calculate the cost? Divide the total cost of each function by the total number of people (including non-employees) who go to the event to arrive at the cost per head.

That means you can book a club in Newcastle, provided you don’t exceed your cost per head. Digi’ here we come.


What about VAT?

Due to HMRC VAT Notice 700/65, you can’t reclaim on your party expenses if only directors and partners attend the event – but if it’s for your staff, you can.

HMRC said: “We accept that the tax is input tax and is not blocked from recovery.”

Get all your team together, and you won’t have any issues from HMRC.


Wrapping up

Virtual gatherings are now an alternative, even if you can’t meet up in person. This is a big change from earlier occurrences and allows you more flexibility in reclaiming some tax.

Unfortunately, unlike other tax rates, this exemption has not grown in line with inflation; according to our estimates, the current amount would be closer to £230 today.

It isn’t worth doing this wrong if you want the best Christmas party possible.

You may suffer if you don’t take proper care to abide by the guides HMRC lays out.

Running an event only to learn that you won’t get the tax relief will be a real ballache.

Need some advice on planning your Christmas bash? Get in touch with us today.

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