While we may not be able to hold staff Christmas parties like we did last year its important to be aware of the tax benefits to holding an event as it might encourage you to make sure you and your team don’t miss out this year.
Is a Christmas party for staff a tax-deductible expense for the business?
In simple terms, yes. Entertaining employees is a tax-deductible expense for the business. This includes entertaining staff and their partners.
But not the entertaining of non-staff such as customers and suppliers.
If you have an event where both staff with partners and non-staff attend, such as customers then costs will need to be apportioned.
Is a Christmas party taxable as a staff benefit?
Provided a Christmas party satisfies the following criteria there’s a tax exemption and its tax free for employees and directors, if the event meets all of the following criteria:
• Its an annual Party or social function, such as a Christmas party or summer BBQ
• Its open and available to all staff
• The costs does not exceed £150 per head (including of VAT)
What qualifies as an annual event?
An annual event is something which happens once a year or is expected to happen once a year.
Christmas parties, summer BBQ’s, day at the races or another annual day out all qualify. The annual day out can vary each year but should be an event that usually happens.
What doesn’t qualify as an annual event?
One-off events like a retirement party or a long service award party.
Do all staff need to attend the same event?
The event must be open for all employees to attend to qualify as non-taxable, but it can be split into several events.
For example, a business can hold separate for different offices or departments.
How is the £150 per head calculated?
For the Christmas party to qualify as a non-taxable benefit the cost must not exceed £150 per head, this includes vat
Attendees are not just restricted to staff. Partners of staff are included in the calculation. So, an event with 50 employees and 50 partners = 100 heads to divide the total cost by!
What expenses are included in the £150 per head calculation?
All costs are included accommodation, travel, food, drink, entertainment!
What if the cost is more than £150 per head?
The £150 per person isn’t an allowance. So, if the cost is £151 a head or £300 a head, it means the full cost is taxable and needs to be reported to HMRC.
This will mean there are personal tax and national insurance implications for employees as well as the employer.
What if we want to have more than one event?
That’s fine, the £150 per head is for a whole year.
So, you can have a Christmas party and a summer BBQ and provided the total cost of both events is less than £150 per head it qualifies.
If you’d like to find out more about tax efficiencies for you and your business, please get in touch!