Managing Your Cash Flow

How to ensure your company’s Christmas party is tax deductible

3 min read

28 November 2014

Even the taxman isn’t immune to the spirit of Christmas. Follow these rules to ensure your Christmas party stays tax deductible.

As a limited company owner, you can receive favourable tax treatment on your annual Christmas party. This means that the cost of the party can be recorded as a company expense, and as such, is excluded from your annual profit, which decreases the amount of corporation tax you will pay at the end of the tax year.

HMRC have a few rules that stipulate what a Christmas party can entail and how much is tax deductible. Providing you meet these, you’ll qualify for a rather jolly festive soiree, complete with a juicy tax exemption.

The rules

  • The party has to be an annual event and not just a one-off shin-dig – a regular Christmas party or Halloween spookfest, for example.
  • You can, however, split the allowance into multiple events, so long as you don’t exceed the £150 total limit. For example, you may wish to have an annual summer BBQ where you spend £60 per head and a Christmas party where you spend £80 per head.
  • Must cost no more than £150 per head – this includes all party-related things such as travel, food, drinks and venue.

This is an exemption, not an allowance, though, so make sure you don’t go over the £150 limit, doing so by even a pound will mean you can’t claim an exemption.

Who can come?

To claim the exemption your party must be open to all employees. Of course some employees may not be able to attend, which is fine, as long as they have been invited. All employees, including yourself, are also entitled to bring one family member or partner to the event who will also qualify for an additional £150 allowance.

If you are a company of one, don’t fret, you too are entitled to a bit of festive cheer. You and your spouse or family member can dine out for a total of £300 (£150 each). Merry Christmas!

Who is not included?

Sorry sole traders, this exemption is only available for limited companies and their employees. You also can’t claim tax relief for anyone that is not an employee or partner/family member of an employee, so clients, partners in a partnership, subcontractors or suppliers are not included.

Sophie Turton is the assistant web editor at Crunch.