Can I claim virtual Christmas party expenses through my limited company?

After the unprecedented events of 2020, employer’s ability to say thank you to their employees and clients has never been more important. But, with the COVID-19 restrictions in place, companies are having to think of alternative ways to wish employees a happy Christmas and are moving their annual office parties online. 

Virtual Christmas parties are eligible for the annual function exemption

This year, face to face meetings have moved online, and virtual business meetings have become the new normal. In recognition of the substantial obstacle’s companies would face holding Christmas functions due to local tier restrictions, HMRC has confirmed that virtual Christmas parties will be eligible for the annual function exemption.

Under the new rules, a company can hold one annual function during a tax year which can now be held virtually. The exemption will apply to virtual parties in the same way that it would apply usually. Therefore, the cost of providing food, entertainment and equipment which may be incurred hosting a virtual event will be exempt, subject to normal conditions being met.

As the event is held virtually, companies can send hampers to employees consisting of food and drink, which can be enjoyed by the attendees together during the virtual Christmas party.

You can find more information about virtual Christmas events on the government’s website.

Rules to follow when calculating the cost of your Christmas party

As a limited company director, you can provide one annual event for yourself, your employees and your partner. You can benefit from a tax exemption for employee entertaining, as long as the event satisfies each of the following criteria:

• You hold one annual party or social function, such as a summer barbeque or a Christmas party.
• The event is open to all employees (or all employees based at one location).
• The cost does not exceed £150 + VAT per head

Expenses that are exempt from Tax and National Insurance (NI) will relate to the cost of putting on the event, from start to finish, and include transportation, entertainment, accommodation and food and drinks.

The limit of £150 per person applies to everyone attending the party, not just employees. If employees are allowed to bring guests, the total should be divided by the total number of attendees.

If you only have one employee in the company, which is yourself, you are still able to benefit from the annual exemption. For example, you could treat yourself to a festive dinner, and as long as you do not exceed the £150 limit, the cost will be exempt from tax and NI.

The £150 is an exemption, not an allowance

It is important to remember that the £150 is an exemption and not an allowance, which means you must spend the money to be able to claim the tax relief. Please be aware that if you exceed the exemption, the entire cost of the event counts as a benefit in kind. You will need to report this on a P11D form, and the expense will be subject to tax and NI.

Gifting employees and directors

As a limited company contractor, you can give yourself and your employees seasonal gifts. The gift it will count as a trivial benefit exemption, so no tax or NI is payable, as long as the following conditions are met:

• The cost of the gift is ‘trivial’ and does not cost more than £50 (including VAT) per person
• The gift is not cash or a voucher
• For directors and other officeholders of close companies (including contractors PSCs), the tax-free £50 gift provided by the company must not exceed £300 in total

Gifting clients

Where the gift includes a clear advertisement for the business, for example, with the companies branding or logo, then the gift may be tax-deductible. The gift must not contain alcohol, food, drink or tobacco (unless this is your business), or vouchers that can be exchanged for goods. These are seen as non-promotional gifts which are not tax-deductible as they are classed as entertaining. An excellent example of a suitable gift would be a branded golf umbrella, diary or mouse mat.

How do I claim Christmas party expenses?

If you are a client of Churchill Knight & Associates Ltd and are interested in finding out more about Christmas party expenses, please speak to your Account Manager who will be happy to discuss this further with you.

If you are interested in finding out more about our limited company accountancy service, please contact us today on 01707 871621 or request a callback for a time that suits you.