In the bowl of a mixer, cream together the butter and sugar until light and creamy.
Beat in the vanilla and egg scraping down the bowl after mixing in.
Sift together the dry ingredients then add to the butter mixture. Mix on medium speed until incorporated.
Divide the dough into two then roll each piece out between two sheets of parchment paper.
Using a round cookie cutter, cut out cookie rounds. Use a smaller cutter or piping nozzle to cut out the center of each wreath.
Place the cookies in the fridge for at least 30 minutes, but up to 3 days.
Pre-heat the oven to 180ºC/350°F.
Transfer the cookies to lined baking sheets, spacing them a few centimetres apart (they don't spread much) and place into the oven and allow to bake for 12-15 minutes until very lightly golden brown, with the edges set.
Remove from the oven and allow to cook for 5 minutes on the baking sheet then carefully transfer to a wire rack and allow to cool completely.
Whisk together the icing sugar, vanilla and the milk or water. Start with 1 tablespoon and mix until your desired consistency.
Dip each cookie wreath into the icing, place onto the wire rack and immediately decorate with sprinkles.