Tax relief at Christmas

Published by Jonathan Ford on

The tax man isn’t always Scrooge when it comes to celebrating Christmas provided you’re running a limited company.

Your company can pay for a Christmas party for your employees (including you if you are a director) for up to £150 per head.

Here are some conditions:

  1. The £150 is not an allowance – it’s the maximum.  That means if you spend £151 per head the whole amount would be a taxable benefit for the staff member not just the additional £1.
  2. The £150 is an annual limit.  You could have a summer barbecue and a Christmas party at £75 per head each.  
  3. The £150 includes VAT and costs like travel and accommodation. 
  4. You must invite all staff
  5. You can have a further £150 per head for additional guests but the primary purpose must an event for employees.   We’d suggest only one additional guest per head and that the guest is a family member of partner of the member of staff.

In practice this means that a writer with a limited company could go out for a meal or night away with their partner and, provided the total cost is less than £300, the company can pay the bill with no tax consequences. If you think that additional drinks might tip the cost over £300 then maybe pay for these personally rather than blow the limit.

With all the restrictions this year on dining out and meeting up with others HMRC have confirmed that a ‘virtual’ Christmas party will qualify. This could be a Zoom call where you pay for the drinks and food or a fancy takeaway.

The Christmas cheer isn’t so good for sole traders.  There’s nothing to stop a sole trader treating their employees in the same way but many sole traders don’t have any employees to benefit.  And as a sole trader you’re not an employee in the way a director of a limited company is.

And finally, if you’re thinking about giving gifts to people connected with your business ( for example, your agent) you can only get tax relief if it’s a gift that carries conspicuous advertising and gifts to the same person are less than £50. No tax relief is permitted if the gift is food, drink, tobacco or is an exchangeable voucher.  Humbug!

Categories: Tax