Are Christmas parties tax deductible?

Christmas is approaching - it's the season of goodwill and the annual company Christmas party is on the horizon. Is your company planning a few drinks after work at the local pub or a lavish all-singing all-dancing extravaganza? Whatever your preferred celebration, the tax implications of the Christmas party are probably not the first thing on your mind when it comes to the planning.

However, as an employer providing social functions for your employees, HMRC points out that you do have some National Insurance and reporting obligations, so why not check them out before you hit the dance floor and see if your Christmas party is tax deductible?

There are two questions you need to ask:

Is my company Christmas party an allowable expense for business tax purposes?

Are Christmas parties tax deductible?

Generally speaking, entertaining your staff is tax deductible, but you have to be careful that they are the only people you're entertaining. If anyone drops out and you have a few spare spaces, you can't fill them up with your clients or customers without carefully working out the costs, because client entertaining is not tax deductible.

Is benefit in kind (BIK) tax payable on a Christmas party?

Any benefit your employees use in their personal time as well as in business hours is considered a perk and liable for tax. To be exempt from benefit in kind (BIK) tax on your Christmas party, the event must:

  • Cost £150 per head or less – this total is inclusive of VAT, and must cover the entire cost, such as travel to and from the venue and accommodation costs as well as the event itself. In addition, this amount is not per event, it has to include all annual functions.
  • Be an annual event – this means a Christmas party or a summer event, as opposed to regular hospitality throughout the year.
  • Be open to all your employees – this doesn't mean a three-line whip on attendance, but the party must be open to everyone, as otherwise it will be seen as a benefit to the chosen ones who are invited.

How about VAT?

If your business is VAT-registered, it's allowable to claim back VAT for a staff Christmas party, providing that the event is specifically for your staff, and not merely with staff in attendance to entertain customers or clients. Also, if your party involves employees bringing along their partners, you can't claim VAT back for them, it's purely for your staff.

All this can make your company Christmas party arrangements seem considerably more complicated than they might otherwise have been! If you'd like to chat through the issues with our helpful and friendly team, why not get in touch and make sure your party doesn't end up costing you more than you bargained for!