The HMRC Christmas party allowance for an e-commerce business

With Christmas around the corner once again, ensure  you make the most of your HMRC Christmas party allowance for happy staff and tax benefits. With the season approaching, e-commerce business owners have added concerns about increased seasonal sales, dilemmas of how much time to spend away from the office, and the annual Christmas party. Let’s make sure the latter is used to its full potential.

If you have staff members, even seasonal staff, a Christmas party can be a sure-fire way to boost morale and team spirit for a small tax-exempt amount. Whether you relish the thought of a staff get-together or not, it can be a useful celebration of a job well done. But what is the HMRC Christmas Party Allowance, who does it available to, and how can your e-commerce business utilise it to its full potential?

What is the HMRC Christmas Party Allowance?

The HMRC Christmas party allowance is available to all limited companies. If your business is currently a different entity, then annual celebrations will be coming out of your pocket. It is tax-exempt but does come with some caveats.

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If your Christmas party meets all of the criteria laid out by HMRC, you might not have to report anything or pay tax and National Insurance.

The Fine Print – Guestlist

As you would expect from the name, the HMRC Christmas party allowance can be used at a Christmas party (or another annual event). It must be open to all employees, and your employees must make up the majority of those attending. This means that while a plus one is acceptable in some circumstances, any additions outside of this will not be covered by the allowance. Shareholders are not covered by the allowance unless they are also employees of your e-commerce business.

If only directors and their partners are able to attend the party, it is no longer exempt. However, the directors’ share is exempt if employees also attend. If your e-commerce business only employs directors, then you can still make use of the HMRC Christmas party allowance, provided all staff members are invited.

Christmas party dinner allowance with HMRC
Todd Trapani

How much is the HMRC Christmas Party Allowance?

The HMRC Christmas party allowance covers up to £150 (including VAT) per employee and generously also includes up to £150 (including VAT) per employee’s plus one, provided the person in question is a partner or family member. This amount is correct as of November 2019 and has remained the same since the figure was introduced.

As the amount is treated as a tax exemption rather than an allowance, going over this threshold (£151+) will mean the whole amount is treated under standard tax rules. Amounts spent on staff entertainment outside of this amount are accounted for as a benefit in kind.

It is worth noting that this allowance has been extended to cover online and virtual events as a result of the pandemic.

What is covered?

Within that £150 per employee, you have few guidelines. The amount can be spent on food and drink, but also on transport and accommodation should you choose to include these. With the nature of e-commerce business, you may have staff coming in from different locations, so using part of the funds to put them up for a night would be an appropriate gesture.

If the £150 per employee threshold is exceeded, even by one penny, it is no longer exempt from tax. It is important that businesses remember this threshold is the total claim amount per employee over the entire year, which leads us to how you can manage the allowance for additional events…

Additional events

The £150 per person is annual, rather than event-based, meaning the yearly total spent on parties for employees must come in under the £150 threshold if you want to take advantage of the tax exemption. Whether this is spent on a Christmas party alone or split between a Christmas party and summer barbeque is up to you, but make sure to keep an eye on your annual party spend.

To make the most of this allowance, as an e-commerce business owner, you may decide to ask employees how many annual social functions they would like to attend throughout the year. This way, you can ensure you plan business functions and parties in line with what your employees would like. Additionally, asking for your employees opinions and listening to their feedback will make your team feel appreciated and listened to.

What next?

If you are looking to make the most of the allowances and tax-deductible expenses available to your e-commerce business, we will be happy to help. Get in touch today to see how we can help you take advantage of the HMRC Christmas party allowance and many tax benefits to move your business to the next level.

The best time to start is now.

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