The Christmas Party

15th November 2016

It’s been a tough year and there has been a lot of doom and gloom around but with Christmas around the corner why not treat yourself and your staff to a Christmas party, boost morale and take advantage of the tax exemption available!!

As an employer you are able to claim the costs of your staff Christmas party as a tax deduction but you need to be aware of the following rules otherwise your staff may end up with an additional tax bill:

The party must be open to all employees, or all employees at a particular location if you have more than one locations

Normally if you were to provide entertaining to your staff they would get taxed on it (boo!!) but the annual exemption means that as long as the costs per head does not exceed £150 there is no tax charge on the employees (yay!)

Exemption not an allowance

Just to be clear the £150 is an exemption not an allowance if the cost goes over the £150 per head then staff will be taxed on the whole cost not just the bit over £150.

Cost per head

The cost of the function includes VAT, transport and accommodation if provided. Divide the total cost by the number of attendees (including non-employees) to work out the cost per head.

More than one annual event

So you are a generous employer and you have a Christmas party and a summer barbeque. The Christmas party cost £1,000 including VAT and 10 people attended, the cost per head is therefore £100. The summer barbeque cost £600 and 10 people attended so a cost of £60 per head. The two parties in total cost £160 per head so the staff that attended the summer barbeque would be taxed on £60 each and if they brought with them a member of their household or family they would be taxed on that too so they would be taxed on £120.

So you get the idea, stay within the £150 limit to avoid the tax charges. Note here though if you are a very generous employer you can opt ot pay the tax instead of having it charge on your employees but it can get expensive!

VAT

If you are VAT registered (and not on the Flat Rate Scheme) you can recover the VAT paid on the event but only on the actual staff members and not their partners so you will need to calculate a split of the costs.

Have a great Christmas everyone and enjoy your Christmas parties!