It might seem that the office Christmas party would be one area of business life where the taxman would fear to tread.
However, HMRC is in fact interested in making sure companies adhere to the correct tax treatment for their annual shindig. The rules surrounding the expenditure and tax liability of your party are actually quite detailed and as the festive season looms it might be worth getting up to speed.
For a typical growing business, the company directors are entitled to reclaim the costs of laying on an annual event for themselves and their staff against the company – providing the cost per head does not exceed £150 (including VAT).
How is the cost calculated?
It’s important to note how that cost is calculated: it can include accommodation, transport and food and drink. The other main stipulation is that the bash must be open to all company staff to attend – so throwing a private party for yourself and a few close friends won’t cut it.
You should also be aware that the £150 limit is for the whole year and not just the Christmas party. So if you’ve already laid on a summer BBQ you may have already reached your tax deductible limit for the year. And this is a limit, not an allowance: if the party costs £151, the whole benefit is taxable.
Who to invite?
And be careful of who you invite: as the owner of the business, you can claim back input VAT on party expenses, but this may be restricted if you are also entertaining customers.
And, finally, for all the Scrooges considering simply claiming the £150 cash allowance and not bothering with a party, even the taxman frowns on that. Company directors must actually hold the event to reclaim the costs. Importantly, as with all expense claims, you do actually have to hold an event in order to reclaim the costs against your company. You can’t simply make a cash claim for £150.
For those interested, you can research your rights and obligations here: Section 264 ITEPA 2003: annual parties and functions, as amended by S.I. 2003/1361 art. 2
Of course, there’s nothing quite like completing your tax return to really get you in the mood for Christmas – it is the season of goodwill after all.
However, if you’d rather spend your time perusing a wine list and organizing some party games, then you can always ask Paul Beare Ltd for help.