If you are planning to hold annual parties for Christmas this year, don’t forget about the tax exemptions you are entitled to. You can easily save some money on your tax bill, but you have to ensure you follow the rules, otherwise you could end up missing out. Here’s what you need to know about annual parties and tax exemptions.
Is the Annual Christmas Party Tax-Free?
Unfortunately, the annual party is not a tax-free allowance, and instead it is tax-exempt. What this means is that you need to make sure you don’t go over the spending limits specified by HMRC, otherwise you could end up losing out.
What Are the Limits?
When it comes to annual parties, HMRC sets a limit on the amount of money you can spend on each person who attends, and the current limit is £150.
Because this is a tax exemption, if you spend over £150 per head, even by a tiny amount, you will not be able to claim the annual party as a business expense.
Important Guest List Requirements
There are also some important rules surrounding who is invited to the party. In order for your annual party to be covered by the tax exemption, you must ensure that everyone is invited. So all the employees must receive an invite for it to be covered.
There is another factor to consider when it comes to invites. Can your employees invite their own friends along? The rules state that employees can invite one person each, but that the invited guests must be a partner or a family member. These extra invites will be included in the £150-a-head limit.
Rules Surrounding Different Company Locations
If your company operates from different locations, you can hold different annual parties. However, all the employees must still be invited to one of the events. This is the same if you want to hold parties for different departments in the company. As long as everyone receives an invite to one of the parties, the exemption is valid.
Is This Only for the Christmas Party?
HMRC states that the £150 limit applies to annual parties and tax exemptions. This could include the Christmas party if it is an annual event, which it normally is. But it could equally apply to an annual summer party. It does not apply to one-off events like anniversary celebrations, even if you don’t have any other parties during the year.
It’s also important to remember that the £150 limit can be used to cover multiple events, as long as they are annual events. If you spend £75 a head on your summer party and £75 a head on your Christmas party, they can both be included as tax exemptions.
Annual Parties and Tax Exemptions: Save on Your Taxes
With Christmas fast approaching, now is the time to start planning your annual party. Make sure you keep the above information in mind when you are planning on how much you will spend, who is invited and where to hold the party. That way, you could save some money on your tax bill at the same time as celebrating the hard work all your employees have put in during the year.
