It’s getting closer and closer to that time of the year, and whether you think it’s too early or not, whoever is in charge of organising the Christmas do will certainly know that the bookings need to be made sooner rather than later. There’s no reason to be a scrooge about throwing a Christmas party for your team so long as you follow these tax rules that will allow you to claim the cost of the party as a legitimate tax-deductible business expense:
Rule #1 – It has to be an annual party
If you’re going to throw a party this year, be aware that you’re committing to all future Christmas parties! One tip for those businesses who are really struggling with budget and are perhaps reluctant to splash out on venues that will no doubt charge extra for the Christmas menu is to hold a summer (or any other time of year) party instead. So long as the event is an annual occurrence, the cost of the event will be an allowable business expense.
Rule #2 – Your guest list must include everyone
You can’t throw a party just for your favourite co-workers, the most senior members of staff, or only those who met their targets. The party must allow every employee the opportunity to attend if they wish. What’s more, if you allow your employees to bring a plus one to the party, that cost can also be claimed so long as their guest is a partner or family member. Inviting other people such as clients, loyal customers, prize winners, or shareholders (who aren’t employees or directors) however, is not an allowable expense so you will have to account for their cost separately.
Rule #3 – Stick to the budget
HMRC have limits to their Christmas spirit so be sure not to go over the top or it’ll spoil all the fun. For each employee that attends the Christmas party you’re allowed to spend a maximum of £150 (including VAT) per head. Be careful with this rule though as it’s rather strict. You cannot spend over £150 and then only claim £150 as a business expense because as soon as you go over the threshold, the entire cost is no longer tax deductible and will be subject to corporation tax.
Rule #4 – Deck the halls (so long as it’s not at home)
Throwing a Christmas party at the office is a great cost-saving way to still enjoy the festivities and reward the team for their hard work throughout the year. To make it feel a lot less like being at work, did you know that you can buy a Christmas tree and all the decorations as a legitimate business expense? This is only the case if you do not work at home as HMRC will see the decorations as for your own enjoyment.
Rule #5 – A small token of your appreciation is allowed
Feel free to show your employees just how much you appreciate them with a gift. Just don’t be too extravagant and limit your generosity to no more than £50 per person to stay within the tax rules. To avoid having to pay tax on your gifts, you need to make sure it’s not cash or a cash voucher (Christmas bonuses will need to be put through via your payroll and subject to national insurance).
Recognising what is a legitimate business expense and what is not can be tricky as there is no one place which lists them all out. It may be better to rely on trusted chartered accountants with years of experience to help make sure you’ve claimed for everything you can as well as ensuring you don’t make mistakes and claim for something which you shouldn’t. If you need expertise on tax and accounting for your limited company then why not have a chat with the team at Kench & Co to see how they can help add value to businesses.