Is a staff Christmas party a business expense and is it tax deductible?

Providing an annual party for your employees is a great way to thank them for their hard work, and Christmas is often the most popular time for franchise businesses to show their appreciation. The good news is that these parties are exempt from tax and National Insurance, based on three main (and STRICT) stipulations:

It must cost £150 or less per employee

If you spend any more than £150 (including VAT), then the whole cost is no longer considered an expense. The cost will then need to be reported as a benefit on P11Ds for each employee. They would then be taxed on the benefit and you, as employer, would have to pay Class 1A NIC.

So, make sure your budget is tight, or all your party costs are liable for tax. And please be aware you cannot claim back the VAT on any plus ones that employees bring.

The per person VAT inclusive cost should include all costs for the event including food, drinks, transport and/or overnight accommodation if these are offered.

The party must be thrown as an annual event

Your party can be any time of year, not just at Christmas, but needs to be seen as an annual event. You can organise as many annual parties as you like throughout the year, so long as the combined budget is still £150 per head or under. So, you could pay £75 for a summer party and £75 for a Christmas party and claim for both. Remember to keep to the £150 mark for the combined cost – the same rule still applies, no matter how many parties you throw.

And, if you go over budget for one of the parties, the whole of that party becomes a taxable benefit. So, if you have a Christmas dinner at £75 per head and then a summer party at £80 per head, you can only claim one of these as a business expense.

It’s open to all present employees

All your employees on your payroll must be invited to the party, you can’t just pick and choose your favourites to guarantee a good time!

To be clear, a party that’s just for your senior team is not considered an allowable expense in this case. Contractors and customers are not considered as eligible, even if you consider them to be part of your team. If you invite them, it ceases to be seen as a staff event.

Interested in learning more about expenses and benefits? Get in touch with us to discuss them in more detail.