How to have a Happy (Tax-Deductible) Christmas

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Christmas Parties for Employees

The festive season offers an ideal opportunity for you and your staff to get out of your normal workspace for a Christmas party, and it’s a great way to show your appreciation for all their hard work during the year. Even better, providing you stick to the HMRC guidelines, the party expenses are tax deductible too.

The guest list:  Keep in mind that in order for the expenses to be tax deductible, the party must be open to all employees, and each employee can bring one partner/spouse too. As the director of a limited company, you are also considered to be an employee. However, non-employees (including clients or suppliers, for example) are not included in this allowance.

The budget:  You can claim up to £150 for each employee and their non-employee guest per year. This does not have to be at one single event, as long as the total cost per year, per head, does not exceed £150. This also includes all the associated costs of organising the event such as travel to the venue, accommodation, and the food, drink and entertainment during the actual party.

Benefits in Kind:   If you exceed £150 per person in one year, even by £1, there will be a ‘benefits in kind’ charge for each employee and they will have to pay tax and Class 1a NICS on the whole amount spent per head on the function. So it makes sense to organise a modest event rather than blow the budget!  Also remember, the £150 is not an allowance, but a maximum limit for the actual cost, so don’t feel you have to spend the full amount.

A note for Scrooge:   This applies to all expense claims, of course, but remember you can’t simply claim back £150 cash allowance from your business and not hold a party – you can only claim for legitimate expenses incurred for an actual event!

Christmas Lunch for Clients or Suppliers

Freelancers, self-employed individuals and contractors who don’t have staff to celebrate with may consider taking their most valued client out for a Christmas lunch to show their appreciation. However, this is classified as business entertainment and is not tax deductible, and you can’t claim VAT back either. However, treating your best client to lunch has relationship-building potential that may prove well worth the money – and after a glass of mulled wine they might be willing to give you a cheeky heads-up on next year’s projects too…

Finally, don’t forget to keep all your receipts and upload them to your Tempo account as soon as possible to keep your expenses on track.

Enjoy the party!