With the festive season fast approaching, it is worth revisiting the tax treatment of providing a staff Christmas party or giving gifts to your employees. Here is a quick reminder of the rules, so you can get your festive finances in order and avoid springing any unwanted tax surprises this December.
Love them or loathe them, work Christmas parties have become an office tradition and are a great way of rewarding both yourself and your employees after a year of hard work.
The general rule is that expenditure relating to staff entertaining is an allowable deduction for tax purposes. There will also normally be no employee tax or national insurance due on annual functions such as a Christmas party or summer barbecue, provided they are open to staff generally.
The cost of providing ‘annual parties’ cannot exceed £150 per head per year, and includes the cost of the venue, food, drink, music, accommodation, taxis and VAT. The limit of £150 per head applies to all those attending the party, not just employees. So, if employees bring a plus-one, the total cost should be divided by the total number of guests in attendance.
Remember for VAT purposes, you can reclaim the expenses relating to staff but not their guests unless they are charged to attend –this charge needs only to be a notional amount.
Your company may hold more than one ‘annual event’ per year, but the total claim for all events in the year must not exceed the threshold or the full cost may be taxable on the employee as a ‘benefit in kind’. It is up to you on which event/s you choose to make the claim.
In order to avoid employees being taxed on their attendance at either a Christmas party where the cost exceeds £150 per head and/or other staff entertaining events, it is possible for the company to settle the tax and national insurance due on a grossed up basis. This is called a PSA (PAYE Settlement Agreement).
The rules surrounding business expenses can be quite complex, so if you have any questions, please get in touch with your usual contact at Haines Watts.
For more tax saving opportunities take a look at our online factsheet.
Expenses and benefits: social functions and parties – HMRC
Benefits in kind – Blog
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