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Is your company’s Christmas party tax-free?

  • 4 min read
  • 4 Dec 2023

Who would have thought that HMRC is all for champagne, confessions and co-workers? 🫣Certainly not us! 

But, before you spread the goss, let us clarify – we’re talking about your company’s Christmas party. 

We know, we know, our revelation isn’t as scandalous as you first thought. But it’s nonetheless full of surprises! 

The first one being, did you know there’s a tax exemption for your company’s Christmas party? 🎄

Have yourself a very merry Christmas (party) 🎶

To qualify for the tax exemption, your company’s Christmas party must meet all of the following requirements: 

  • It’s annual – the event happens or should happen every year  📅
  • It’s open to all employees based at one location – it might seem like a ‘morals thing’ but it is, in fact, an official rule!
  • The cost does not exceed £150 per head (inclusive of VAT)

If you’re not sure what this means for your next company Christmas party, fear not! We’re going to break down all the rules and regulations 💪

It’s the most wonderful time of the year 

Your company Christmas party must be annual. But, is this as self-explanatory as it sounds? 

An annual event is something which happens or should happen once a year. Our prime example? A company Christmas party! 

Most businesses provide one for their staff annually – except some are definitely better than others 😉(sorry not sorry).  

By contrast, a one-off event which does not happen once a year, such as a retirement party, would not qualify for the tax exemption 😢

All I want for christmas is £150 tax-free boogie 🕺

£150 sounds great, right? And it is! But, we’d recommend that you take a few notes before you splash your company’s cash ✏️

For the Christmas party to qualify as a non-taxable benefit, the cost must not exceed £150 per head.

It is calculated by adding up the total cost of the event and dividing it by the total number of attendees.

In other words, you might want to consider budgeting before you buy … 💸

It’s also important to remember that the limit of £150 per head applies to all those attending the function, not just employees 👭

So, if employees bring guests, the total cost should be divided by the total number of employees and guests.

Deck the halls with boughs of holly

Yep, that’s right, deck out your party venue with all the decorations you can get your party planning hands on! 

All and any of the costs for putting on your Christmas party are included in the £150 per-head calculation! From setting up to cleaning up and everything in between: 

Here are a few more examples:

  • Accommodation 🏨
  • Travel 
  • Food 🍔
  • Drink
  • Entertainment 🪩

The more the merrier? 🤔

It’s a phrase we often hear during the festive period. But, it should not always be taken literally 🫠

Take HMRC for example. They are not in favour of more than one tax-free annual event. 

We’re afraid it’s true. The £150 per head is for the entire year, not per event.  

But, don’t worry! If you hold more than one annual party in a year, you can split your £150 exemption over several events 🎉

For example, if you had three allowable events you could spend £50 per head on the first event, £50 on the second event and the final £50 on the Christmas party. 

I’m dreaming of a … loophole!? 

Think you’ve found a loophole? We hate to be the bearer of bad news but unfortunately, HMRC are always one step ahead. 

For example, you may have considered contributing to your Christmas party to reduce the per-head cost. But, that won’t work on HMRC’s watch 👀

You’ll also want to take extra care to remember this: 

  • The £150 is not an allowance
  • If the per-head calculation exceeds £150 then the full amount of the Christmas party is chargeable to staff as a taxable benefit 💳
  • E.g. If the event was just £1 over (£151 per head) then the full amount is a taxable benefit 😳

And the bells are ringing out for HMRC 

Before we send you on your way, there’s one teeny tiny detail you must not miss… 

Reporting your Christmas Party to HMRC. 

The good news is that annual events that meet the tax-free requirements don’t need to be reported. Your company should simply keep their paperwork for proof of exemption if needed later on. 

If your party planner has too much fun, and the cost per head exceeds £150, your company must report a benefit for each staff member. They can do this on a P11D – but your presence at the party might just land you a present from HMRC… 🎁

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