If you’re thinking of holding a Christmas party for your company this year – or a party at any time of the year – you may be able to enjoy Corporation Tax relief on your expenditure – as long as it meets HMRC’s rules.
Although limited companies cannot usually claim tax relief on business entertainment expenses, HMRC provides a rare exemption for staff annual parties and social functions (subject to a cost limit of £150 per staff member per year).
Importantly, the cost – per person – of a company party mustn’t exceed £150 per head – even by a penny – or your staff members will have to pay benefit in kind taxes on the value of the entertainment they receive.
And before we explain how this exemption works in practice, it is only available to limited companies, not sole traders or umbrella company employees.
Key points to remember
Cost Limit:
The £150 per head limit is strict. Even exceeding it by a penny means the entire cost becomes taxable as a benefit in kind for employees. It is not an ‘allowance’. Your company must incur real costs in order to use the exemption.
Eligibility:
This exemption is only available to limited companies. Sole traders and employees of umbrella companies are not eligible.
Qualifying Events:
The event must be open to all employees, not just the company’s directors.
Multiple events can be claimed as long as the total per person does not exceed £150 per year.
The exemption applies to parties or gatherings at any time of the year, not just at Christmas.
If you’re a sole director, you can include your partner in the calculation and both use the £150 exemption.
As a result of COVID, virtual events are now also included.
What Costs Are Covered?
Allowable expenses include entertainment, accommodation, and transport directly related to the event.
VAT Considerations:
The £150 limit includes VAT, where applicable.
Your company can reclaim the VAT element, but only if non-directors attend the event. In other words, you can’t reclaim the VAT if only directors and their partners attend. There need to be other staff members in attendance. You can read more here.
Multiple office locations?:
If your company has more than one office location, an event that’s open to all of your staff based at one location still counts as exempt.
If you run a larger company, you can have separate events for different departments, as long as all of your employees can attend one of them.
How Does the £150 Per Head Exemption Work in Practice?
You can claim relief for up to £150 per employee per year.
For example, if you host two parties in a year, one costing £80 per head and another £70 per head, both qualify as they fall within the annual limit. However, if the second party costs £90 per head, the total (£170) would disqualify the exemption.
To calculate the per-person cost, divide the total cost of the event (including VAT) by the number of attendees (employees and their guests). For example: Total Event Cost: £3,000
Attendees: 20 employees + 10 guests = 30 people
Per-Person Cost: £3,000 ÷ 30 = £100 (qualifies for exemption)
Free Tide Business Bank Account - up to £150 Cashback!
Simply open a free business current account to qualify + 12 months free transactions. Read our Tide review. Open a Tide savings account at the same time and earn an excellent 4.07% AER (variable) on your spare funds.
