Christmas parties don’t have to be taxing 

The traditional office Christmas party is a wonderful time to celebrate, and the good news is that HMRC is happy to help everyone enjoy themselves, but there are limits! Jonathan Walton, Director at Whitley Stimpson explains. 

Following the restrictions of COVID there has never been a better time to hold a staff  Christmas party. It is a great way of rewarding employees and, with so much virtual working these days, allows them to socialise which is fantastic for morale. 

HMRC is also generous when it comes to work parties as long as the event is open to all employees, held annually, and costs less than £150 per person. 

This rule even applies to multiple events at one location such as inter-departmental celebrations along with parties at different sites, including virtual events. Additionally, the exemption can apply to events at other times of the year if they do not add up to more than £150 a head including VAT. 

Jonathan Walton said: “Company directors would have to be very generous to exceed £150 a head on the Christmas party and it would still be relatively easy to hold a summer event too without incurring tax. 

“The golden rule to remember is that the £150 figure is an exemption and not an allowance. 

“For example, if a company holds an annual summer staff barbeque costing £60 a head and a Christmas party for £100 per person, then the exemption should be applied to the festive event and tax paid on staff attending the barbeque.” 

Employers should bear in mind that such events should be open to all staff. If it is decided to hold a directors’ party only then it is not covered by the exemption. If the costs, including transport and accommodation, exceed £150 then the whole amount is taxable as a benefit on the employee – not just the excess and needs to be reported on employees’ P11D forms. 

This situation could lead to individuals being liable for income tax and National Insurance (NI) on the party expenses, potentially causing dissatisfaction. Alternatively, employers have the option to manage taxable staff entertainment expenses by utilising a PAYE Settlement Agreement, which enables them to inform HMRC about the event and settle the corresponding tax and NI on a grossed-up basis. 

Along with parties, it is possible to play Santa Claus with staff by handing out small gifts which may be covered by the trivial benefits rule. 

A trivial benefit is defined as an expense of £50 or less per person, including VAT, and should not relate to services rendered. The annual limit for directors, officeholders, and their families is set at £300, making it an excellent method for appreciating staff and steering clear of any Scrooge-like associations. 

Also, business gifts to clients are not normally allowed as a deduction against profits but there are exceptions. For example, free samples of your products are 100 per cent deductible while gifts advertising the business such as diaries, pens or Christmas cards are tax deductible up to £50 per person per annum. These are traditionally well received and can keep your business in mind over the coming year. 

It is worth noting that whilst VAT on client entertaining is not recoverable, it can be for employees, although not their partners. 

Jonathan added: “With thoughtful planning, a good celebration is perfectly possible without tax concerns, ultimately leading to a Merry Christmas!” 

For more information about how Whitley Stimpson can support your business visit www.whitleystimpson.co.uk

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