Can you claim your Christmas party as a business expense?

Christmas is a great time for celebrating and reflecting on your achievements over the last year.

Contractors often ask us if they can claim the cost of a Christmas ‘do’ as an allowable business expense. The good news is that ‘Yes’, you can, but of course there are some criteria that must be met.

If you need a reminder of what you can claim as an allowable business expense, please refer to our comprehensive ‘Expenses Guide’.

First, let’s remind ourselves of what constitutes an allowable business expense.

According to HMRC, an allowable business expense must have been ‘incurred wholly, exclusively and necessarily for the purpose of running the business.’

Any expense that has a dual purpose i.e. it has a personal and business use, isn’t deemed to be an allowable business expense.

Christmas party expense criteria

As a director of a limited company, you can claim expenses relating to putting on a function up to a certain amount. If the costs meet the following criteria, they will be exempt from tax and National Insurance.

The criteria for Christmas party’s or other events are:

· Cost of the party is £150 or less, per head per year

· It must be an annual function

· The function must be open to all employees

The £150 limit includes VAT as well as any additional costs such as transport or accommodation.

Can I claim for a party for one?

There’s often confusion around if you can claim for a Christmas party for one i.e., you’re the sole director.

It’s simple, ‘Yes’, you can still claim for a Christmas party for yourself. As long as it meets the criteria set out above, it will be exempt from tax and National Insurance.

I have employees, can I claim for them as well?

If you have employees, and as long as the event is open to them all, the cost of the function is exempt from tax and National Insurance up to £150 per person, and as long as it meets the other criteria set out above.

A Christmas party is an exemption, not an allowance

The cost of claiming for a Christmas party is considered an exemption, not an allowance. This means that if the cost goes over £150 by even a penny, the entire expense is subject to tax and National Insurance. And it must, also be recorded on the P11D.

Calculating the cost of the function is easy. If it’s just you – total up the associated costs. If you have employees, add up the total and divide it by the number of attendees, to get the cost per head.

As an end note, it’s important to note that the £150 cost per head is for the entire year. So, if you decide to host several functions throughout the year, the total cost of these must not exceed £150. If they do, they’ll be subject to tax and National Insurance.

For a full breakdown of what you claim as an allowable business expense, see our ‘Expenses Guide’ or speak to one of our Directors on 01962 867550. Alternatively, send us a message via our website and we’ll call you back.