Christmas Parties and Tax

Are Christmas Parties Tax Deductible?

For purposes of corporation tax, your limited company can claim a deduction for its Christmas party. As long as it is not incidental to entertaining others, entertaining your staff is tax deductible.

What are the tax-free allowances?

The general rule is that you can spend up to a maximum of £150 including VAT per employee, plus another £150 for guests (such as the employees’ partners).
  

The cost is fully tax-deductible for you and there is no Benefit in Kind (BIK) to worry about. The only condition is that you must invite all of your staff and not only the ones you like or want to reward.

What conditions must be met?

You must meet the following conditions for the staff parties to be tax deductible:

• • Total cost is no more than £150 per head

• • Must invite all employees

• • Party should be for employees and not incidental to a party for your customers
    
    

Are Christmas gifts tax deductible?

Indeed, apart from throwing a party, you can also reward your employees with a gift. There is however a condition that the gift should not be more than £50 including VAT per person annually.

If you are feeling generous and want to gift over the £50 allowable amount, please note that HMRC will disallow the full amount of the gift.   

You also cannot gift things such as alcohol or tobacco, cash or cash vouchers and it should not be a reward for the work or performance over the last year.

Christmas gifts for employees over the limit.

If your gifts are over the limit, you may need to complete a P11D and pay the additional national insurance on the gift. The employee will also have to pay tax on the gift.

VAT treatment of the party and gift.

You can claim back the VAT on the Christmas Party and the £50 gift.

However, there is an exception on the party if:

• • Entertainment is provided only to director and their partners

• • Employees act as hosts to non-employees
    
    

What if I am the only director with no staff?

The good news is that you can still have a Christmas Party for yourself and your partner and don’t forget to give yourself a gift.

How can Finanche help you?

By contacting us and checking the rules, you can rest assured that you are following the rules when it comes to entertaining your staff or customers. We will give you guidance on what is tax deductible, what needs to be included in your P11D submission and on what you can reclaim VAT.