Love them or loathe them, Christmas parties are a fantastic way of rewarding yourself and your employees for a year of hard work.
Because they aren’t total Scrooges, HMRC provides added incentives to limited companies (unfortunately, not sole traders) putting on a Christmas party for employees.
The parties will be exempt from tax and National Insurance, but there are some strict rules, including the following:
- The party cannot cost more than £150 (including VAT) per person
- The party must be an annual event, such as a Christmas party or summer party
- The party must be open to all of your employees (and must consist mostly of employees)
- Shareholders are not included in the exemption if they aren’t employees or directors
You can also claim an additional £150 per person for a plus one for each employee, providing they are a family member or partner.
Exemption, not allowance
It’s important to remember this is an exemption, not an allowance. So if your party costs £151 (or more) per person, you won’t be able to claim the first £150 as a business expense – the whole thing will be taxed as normal.
The exemption also spans the whole year, so the combined cost (per person) of all parties in a single year cannot exceed £150.
How do I claim the exemption in Crunch?
If you’re a Crunch accounting client then simply record the cost of the party as a Staff Welfare Expense in Crunch and you’re good to go. Don’t forget to scan and upload any receipts or invoices for secure storage.
If you want to learn more about business expenses, including what you can and can’t claim, check out our free Business Expenses guide.