(In a COVID kind of way of course…)
HMRC have agreed that the annual party exemption will apply to the costs associated with virtual festivities in the same way that it would for traditionally held festive parties. Therefore, the cost of providing food, entertainment, equipment and other expenses which may be incurred in hosting a virtual event, will not be taxable on the staff member, subject to the normal conditions of the exemption being met.
So what are the ‘normal conditions’…
- Any size of company can have a Christmas party – whether Ltd, a partnership or a sole trader.
- The maximum spend per person cannot exceed £150
- The event must be open to all company staff to attend
- Shareholders do not count unless they are a director or employee
- You can also claim £150 per person for a ‘plus one’ for each employee – providing that they are either a partner or family member
- You do actually have to hold an event in order to reclaim the cost!
The benefit to the company is that
- it is a tax deductible expense in your accounts, and
- the VAT can be reclaimed on the event (but not if the only attendees are directors and partners)
The benefit to the employee is that
- the value is not a taxable benefit, so not subject to tax or NI
- it truly is a free lunch (or dinner, or party).
It is really important to note that the cost cannot exceed £150 (not even by 1p). If it does then THE WHOLE COST, (not just the bit over £150) becomes taxable as a ‘benefit in kind.’ And if a company has more than one event in the year, then the total cost per head must not exceed £150. If it does then you will have to designate one of the events as the Annual Party and pay the tax on the other.
Oh, and you can do this even if you are a sole trader or sole director and just want to have a slap up Christmas meal on the company – you’ve worked hard enough through the year for goodness sake – so cheers!
To discuss the implications of your Christmas Party, contact us here