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Is the Christmas Party tax deductible?

It’s that time of year again when people start thinking of Christmas Parties. So what can you actually claim as a ‘business expense’?

Employees only

Unfortunately, you have to be an employee in order for the Christmas party to be tax deductible. Therefore, this excludes sole traders, partners in a partnership, sub-contractors, clients or suppliers. If you are a director of a limited company, you are an employee and therefore you are entitled to the annual party exemption.

How the annual party exemption works (ITEPA s264)

This allows expenditure of £150 per person per year on parties to be deducted from profits as a business expense. For this to be allowed, the following must apply:

  • The people attending the party or function must be current or retired employees and their partners.
  • All employees must be invited.
  • The amount of the expenditure when added to previous ‘party’ expenditure of that year must not exceed £150 per head in total. E.g. If you spend £60 per head at Easter, £60 per head in the Summer and £60 per head at Christmas, the whole amount at Christmas is NOT exempt.

The cost of a party/function includes transport, any overnight accommodation and VAT.

Please see our previous blog about entertainment costs: http://www.ace-accounting.co.uk/blog/business-expenses/food-and-drink-subsistence-entertainment/

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