How to host a Christmas party and save tax

2020 has been… unusual to say the least, but social distancing doesn’t mean you can’t celebrate Christmas in style! HMRC allows limited company owners to reward your employees (and their partners) with annual events; such as a Christmas party. Whilst restrictions mean a physical event is unlikely this year, online events are also eligible for tax relief.

HMRC has confirmed the following with regards to tax exemption on virtual events:

“Having considered the scope of section 264 ITEPA03 (annual parties exemption), we are pleased to confirm that the exemption will apply to the costs associated with virtual parties in the same way that it would for traditionally held parties.

“Therefore, the cost of providing food, entertainment, equipment and other expenses which may be incurred in hosting a virtual event, will be exempt, subject to the normal conditions of the exemption being met.

“It is important to note that the intention of the exemption is to allow for costs of provision which are generally incurred for the purposes of the event itself, and that the event, along with any associated provision, is available to employees generally.“

Getting into the festive spirit

HMRC allows you to claim up to £150 per person (including VAT) for annual events per year. So you could host one huge Christmas party, or combine your winter celebrations with a summer event – as long as the combined total, per head per year, is £150 or less.

This can include food, drink and entertainment. Better yet, it can also be claimed for partners who don’t work for the company – so that’s £300 per couple.

Full HMRC details on annual parties can be found here.

What’s the catch?

The only small catch is to ensure that you spend no more than £150 per person – if you go just a penny over you’ll lose all of the tax benefits. Other than that, HMRC’s rules are straightforward – you just need to ensure you meet the following criteria:

  • The event must be annual and open to all employees in your company
  • It’s not an allowance, you’ll still need to claim for an actual meal or event and provide the receipts like any other expense

If you’re a one-person limited company you can still claim back the cost of an annual party, plus the allowance for a partner applies too. That means you can indulge yourself and your partner on a £300 tax-free festive shindig.

You can read the full details of reclaiming the cost of a Christmas party here.