Christmas party expenses guidelines for contractors

Although most contractors work as one or two-man limited companies, with no other employees, you are allowed to claim back the costs of an annual party for your staff, as long as you follow the HMRC guidelines carefully.

Annual company event – eligibility rules

Here are the main things you will need to bear in mind before you hire a ‘party organiser’ this month:

  • HMRC does provide tax relief to all companies for the costs of providing an ‘annual event’ for its staff. This would typically be some kind of ‘party’ around Christmas time.
  • As long as the total VAT-inclusive cost per person does not exceed £150, the total amount can be claimed against the company, without any Benefit in Kind charge being made to the recipients.
  • All annual events must be open to all ‘staff’, and the £150 per head expense can include the costs of transport, overnight accommodation, as well as the costs of the party itself.
  • Importantly, you can also invite along a ‘partner’ to your Christmas event, and the same £150 allowance applies to them as well.
  • You can also claim back the cost of more than one ‘annual function’, as long as the total per employee in the year does not exceed £150.
  • You must ensure that you do not exceed the £150 limit, otherwise, the entire claim will be subject to employers’ and employees’ NICs and income tax.
  • As is the case with all expense claims, you can only claim back the costs of an annual function if it has been legitimately incurred – you can’t just claim a £150 cash allowance from your company.

What about a virtual event?

As a result of the widespread disruption caused by COVID 19, you can now claim for the cost of virtual events you hold for your company, as long as all the conditions listed above are met. An additional paragraph has been added to the official guidance to confirm this (see below).

Further Information

For the official word on annual party expenses, read HMRC EIM21690, which outlines the terms of Section 264 of ITEPA 2003 here.

If you are unsure about any aspect of expense claims, or your company accounts, make sure you contact your accountant.

Partner Contractor Accountants

Last updated: 18th January 2024