Tax Free Christmas Parties and Other Celebrations

Tis the Season to be Merry!

Now is the time to celebrate the festive season particularly after two Christmases under lockdown. The great news is that you can enjoy tax relief around your Christmas and other annual celebrations.

Christmas party tax allowances refer to the tax relief that employers can claim for expenses incurred in hosting a Christmas party or event for their employees. According to HM Revenue and Customs (HMRC), there are specific guidelines that must be met in order to qualify for this relief.

One of the main requirements is that the event must be open to all employees and must not discriminate against any particular group of employees.

Additionally, the event must be held on an annual basis and should be considered a "traditional" Christmas party. This does not mean that it needs to be “turkey and tinsel” just some type of appropriate seasonal party which could just be drinks, lunch or dinner, or could include live entertainment.

The tax relief applies to the cost of the event, including food, drink, and entertainment. It can also include transport and overnight accommodation. However, it is important to note that the relief is capped at £150 per head per tax year.

This £150 cap extends to guests that your employees bring along, provided they are a partner or a family member. Christmas party costs are considered an exemption and not an allowance. So, if the cost exceeds this limit, then the whole cost becomes a benefit in kind, not just the overspend.

Employers can claim the relief through their Annual Tax Return

You should keep records of the expenses incurred for the event. This can include receipts, invoices, and any other documentation that supports the cost of the event.

It's worth noting that this tax allowance is also available for other kinds of events such as summer parties, and events held for charity or to celebrate a business achievement. You can spread the £150 per head tax exemption across events, for example you could split it in two with £75 for the Christmas event and £75 per head for a summer celebration.

If you wish to reclaim VAT on your celebration costs, remember:

• You can reclaim the input VAT on party expenses if directors attend the Christmas party alongside their employees.
• You cannot claim the VAT on Christmas party expenses if only a director and their partners attend the event.

If you would like more support around tax allowances and exemptions, then why not get in touch today .