Tax relief for your 2022 Christmas party

The tax system can be the bane of your life if you’re a company owner. Submitting returns on time and adhering to the many pieces of legislation – it’s a minefield at the best of times.

But when it comes to Christmas, there is positive tax news – your Christmas party can save you money.

It’s not a specific allowance, per se, but HMRC provides tax relief against the conditions of holding an annual event for the company as long as you meet the criteria.

So how does this work?

A £150 (inc. VAT) limit per head allows you to provide an annual event for yourself, any staff you employ, and your business partner, and reclaim these costs against the company.

If you’re worried about this for virtual events, it’s also been updated recently in light of the pandemic.

This is excellent news for you as a business owner. Staff treats are usually classed as a benefit in kind and will affect the staff member individually – employees are taxed on the value of benefits they receive each year. Employers also have to pay extra national insurance on the value of any perks provided.

Don’t exceed the threshold – even by the smallest of margins. But anything can be included in the £150. That means food, accommodation, transport etc.

Make sure that you invite everyone in the business, too.

You can host as many events as you want, provided you stay within the threshold. Or host a summer party instead of a Christmas one – again, completely at your discretion.

To calculate the cost:  divide the total cost of each function by the total number of people (including non-employees) who attend in order to arrive at the cost per head.

Can I reclaim VAT?

Unfortunately, due to HMRC VAT Notice 700/65, you can’t reclaim on your party expenses if only directors and partners attend the event – but if it’s for your staff, you can.

HMRC says: “We accept that the tax is input tax and is not blocked from recovery.”

So make sure your event is for everyone in the business, and you should have no problems.

Wrapping up

Virtual events are now a viable option, even if you can’t meet up in person. This marks a stark change from past events, and gives you more flexibility in claiming back some tax.

Sadly, much like other tax rates, this exemption hasn’t increased alongside inflation – we’ve estimated the current amount adjusted for inflation would be more around the £230 mark.

It’s not worth getting this wrong if you’re trying to find the best way to host a Christmas party.

In our experience, some businesses can get stung if they don’t pay due care to the rules HMRC outlines. It’s not worth running an event and then finding out you’re not eligible.

Get in touch with us today to discuss your Christmas party.

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