For business owners, Christmas is an opportunity to reward staff, show appreciation to customers, and indulge in the celebrations. The good news is that HMRC does offer some tax relief to help with costs but, as always, they come with some pretty strict rules.
In this blog post, we will answer some commonly asked questions about Christmas expenses, so you can enjoy the season without getting caught out!
Is my Christmas Party tax deductible?
The answer to this is a little bit complicated, as it depends on who attends the party.
Staff entertaining is a tax-deductible expense for limited companies, so you can claim this cost on your corporation tax return.
Inviting clients, subcontractors, or staff partners falls into the realm of business entertainment, which is not tax deductible. Inviting non-employees does not make the entire event non-deductible, but you just have to be careful to separate out the staff entertaining costs to prevent confusion.
Sole traders can't claim for Christmas Party costs.
Can I reclaim VAT on my Christmas party costs?
If you are VAT registered, you can reclaim the VAT on Christmas party expenses that are solely for employees.
VAT cannot be reclaimed on costs associated with clients or other non-employees.
Are Christmas Parties tax-free?
There is a £150 per head annual exemption for staff and one plus one attending parties/social functions, so long as the events are an annual occurrence and are open to all staff.
This £150 budget applies to all events throughout the year.
If you stay within this budget and follow the rules, you won't have to pay national insurance on the costs.
This is an Exemption, not an allowance. So, as soon as costs go over £150/head/year, the whole amount becomes a taxable benefit-in-kind to employees.
Can I give employees a Christmas present?
Yes! 'Trivial' Gifts such as food, chocolates, or wine are all allowable expenses that are tax deductible.
To be exempt from being reportable benefit-in-kinds, the gift must be less than £50, it can't be cash or a voucher, and it can't be in your employee's contract.
For directors, you can receive up to £300 in gifts from the company (each must be less than £50 each) per tax year.
Again as this is an exemption and not an allowance, as soon as the gift exceeds £50, the whole amount becomes liable to tax as a benefit in kind.
Is my employee's Christmas bonus taxable?
Yes, Christmas bonuses are taxed under income tax, so must go through your payroll and are subject to tax and national insurance as normal.
Top tips to get the most out of HMRC's exemptions:
Remember you can have more than one annual staff party- as long as the total cost per head for the year is £150 or less. This is £150 per year, NOT per party.
You can invite employee partners to these events, they will have an additional £150 exemption.
Remember that inviting clients or subcontractors to Christmas Parties is classed as business entertaining and so is not tax deductible- so keep costs to a minimum.
However you decide to spend your money this Christmas, we hope you have a good one!
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