As the Christmas season is approaching, companies are preparing to treat their employees to a festive and relaxing gathering before the holidays. If you are a company director looking to organise a Christmas Party for employees, then there are a few HMRC exemptions for social functions and parties that you should know about.

What does the exemption cover exactly?

Limited companies can provide multiple or one annual event for the directors and staff members of the business, and the company directors are able to claim the costs of the annual event against the company.

However, the total cost must be £150 or below per person, and cost can include transportation, food, drinks, and accommodation. The event must occur annually, and company directors are able to choose between a festive or summer events to claim the exemption.

Since 2020, HMRC confirmed that virtual events are eligible for the tax exemptions due to the pandemic, this means that any costs associated with the set-up and the event itself can be claimed though the HMRC employee benefit scheme.

VAT reclaim on social functions and parties.

According to HMRC VAT Notice 700/65 on business entertainment, VAT can be claimed only where directors and partners attend staff parties alongside other employees of the company.

 If the event only provides entertainment for directors or partners of a business, then the goods or services are not used for business purposes, and the VAT cannot be recovered.

How to calculate the cost per person?

To calculate the total cost per head, HMRC has stated that the total cost of the event should be divided by the total number of people attending the event, and the figure provided by this calculation must not exceed £150.  

Final thoughts

HMRC’s social function and party exemptions offer an excellent opportunity for company directors to entertain and reward employees while expensing the associated costs. However, directors must exercise caution when claiming this exemption. If the total cost per head exceeds £150, the entire event becomes taxable, and the director will no longer be able to claim the employee social benefit exemption. Proper planning ensures both compliance and maximised benefits.

If you need further help or advice on how the tax exemption can be used for your work Christmas party contact Cheylesmore Accountants today. We have offices located in both Coventry and Birmingham.