£150 annual event exemption

Save you up-to £126.17 of tax per year

Written by 
Updated on
March 1, 2024

Summary: 

What it is: HMRC allows companies to spend £150 per employee, per year on an annual event without creating any additional tax or national insurance costs

Approx tax saved: This will save you a total of approximately £101 of tax. Actual tax savings will vary depending on your individual circumstances. 

HMRC reference: https://www.gov.uk/expenses-benefits-social-functions-parties 

Here’s how it works: 

Want to have a party and write it off through the business? Well, good news, you can!

HMRC allows companies to spend £150 per employee, per year on an annual event without creating any additional tax or national insurance costs

This tax exemption applies for every size of company. So if you are a single director company, then your total exemption is 150 pounds including VAT. If you have 2 people in your company, it’s £300 etc.

That means, even if you’re the only director and employee of your one-person company, you can still throw yourself an annual party and write off the cost through the business to save tax. 

Sounds good right? Let’s check out the rules!

The rules: 

There are 4 key rules to be aware of: 

1: The £150 exemption covers all reasonable expenses related to the event.

This includes direct costs of the event such as food and alcohol, and the indirect costs like transport and overnight accommodation (e.g. taxis and hotels). 

2: According to the HMRC Employment Income Manual, EIM21690, this exemption is for an annual event that is made available to all employees. If you’re a one-person company, this is fine. 

3: It must be an annual event. For example it could be a Christmas party or summer bbq, or both as the £150 annual exemption can be used across the year. 

4: The total cost of the annual events must not exceed £150 per person - including VAT.

This is key. If the total cost does exceed £150 per head, you cannot claim the exemption. That means if you spend £150.01, your exemption is gone. 

Therefore, to make things easier, our best advice is to plan one ‘party’ and make sure you stick to the budget. Once the bill hits £150, ask for the receipt and pay it. Once you've passed £150, pay for everything else personally on a separate card. This will keep your exemption intact and prevent any nasty benefit in kind charges arising. 

Common questions

1. Can you bring your partner or friend? 

Yes. As long as the total you spend does not exceed £150 you’re welcome to bring your partner or friend to your party. 

The exemption doesn’t double as they’re not an employee or director, but they can attend the event without affecting the exemption. 

2. What constitutes an allowable event?

A Christmas party is the exemption’s most common use case, but technically it’s an annual event exemption. That’s sufficiently vague to mean virtually anything you want it to - as long as you do it annually. 

For example, this could include a full on party or in the case of many solo company directors, taking yourself and your partner out for a meal. 

How the tax saving works: 

Corporation tax & VAT:

Your business will receive corporation tax relief and VAT relief on this expense - if you’re VAT registered.

In total therefore, if your business pays out £150, including VAT per head, the real costs to your business will be £101.25. This gives a total £49.75 corporation tax saving to your company. 

This is made up from £25 of recovered VAT and £23.75 of corporation tax savings assuming you’re taxed at 19% corporation tax.

Personal income tax:

In addition, if you’re a higher rate dividend tax payer, this exemption will effectively save you £76.40 of income tax if you were to withdraw additional dividends to pay for the £150 event personally. 

This is because, at 33.75% income tax on dividends, you would have to issue a further £226.42, paying £76.42 of tax, leaving you with £150 post income tax. 

Total tax savings

Adding the two together, that’s a total tax saving of £126.17, on a £150 event. Not bad right?!

Content:
  1. Summary
  2. Here's how it works
  3. The Rules
  4. Common Questions
  5. Tax Savings
  6. How To Claim
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