How to Claim Your Christmas Party Expenses as a Business Expense?
Christmas festival is celebrated annually with happiness in many countries of the world and Christmas parties are considered as one of the best ways to reward yourself & your employees every year. HMRC provides added incentives to the limited companies for Christmas parties in order to provide benefits to the employees. It is not applicable on sole traders.
Which Christmas party expenses can be claimed as Business Expense?
These Christmas parties are exempted from tax & national insurance which includes cost of function such as –
- Cost of transportation
- Cost of accommodation
- VAT
There are some strict rules which you need to follow in order to claim benefits –
- The party cost per head should not be more than £150 (including VAT)
- The party must be open to all your employees or includes most of the employees
- The party must be an annual event. For ex – Christmas party or summer party
- This exemption is not provided to the shareholders if they are not employees or directors
In case you are having a partner or a family, you can claim additionally £150 per person for one more person.
Only exemption, not allowance
You must remember one thing that this is an exemption, not an allowance. You will not be able to claim this exemption as business expense, if your party cost per person goes beyond £150. When it goes beyond £150, it will be taxed normally.
Hence, make sure that combined cost of a single person for all parties annually should not exceed £150.
For Example – A company organizes a summer party which cost £50 per head. After few months, same company organizes Christmas party for their employees and it cost £100 per head. Therefore, the total cost per head for both the functions are £150 which means that both the costs are exempted from tax & national insurance and do not have to be reported on P11D. In case, the total cost of both the functions exceeds £150, it will not get exempted from tax & national insurance and tax will be charged at the normal rate.
How can I calculate the cost per head?
It’s very easy to calculate the cost of Christmas party for each person. In order to calculate the cost per head, follow the steps below –
- Add the total cost of the event.
- Divide the total cost by the number of people
Cost per head = Total cost of the event/Number of people
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Read Also: Expenses that you can claim back as an Employee
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