With the Christmas season almost upon us businesses will be looking to book up their Christmas party and let staff know the plans. As well as considering how long the bar is open for, there are tax considerations to also throw into the mix. In this blog post we take a look at what they are.
Does the business get tax relief on the cost of the Christmas party?
The event will represent staff entertaining and as such will be deductible from taxable profits. If the business is VAT registered it will also be able to reclaim any VAT incurred.
Is there a limit to the cost?
For the business, no, but for the employees there very much is. There is an annual exemption of £150 per head (important to note that is £150 inclusive of any VAT) for annual events. This is an exemption and not an allowance, so if the cost were to be £151 then the whole amount would be a taxable benefit on the employee and not just the £1 it exceeds the exemption by.
It’s also important to recognise it is an annual exemption. So if you were to have a summer barbeque costing £80 a head, and a Christmas party costing £100 a head, you could not claim both under the exemption. In this example it would be better to claim the Christmas do and declare the barbecue as a benefit.
Can staff bring guests to the Christmas party?
The exemption is per head and not per employee, and so the answer to this is yes, if you are willing to pick up the additional cost your employees can bring guests. The thing to bear in mind here is that the cost is likely to be fixed based on the expected number of attendees, and so any drop outs will push up the average cost per person and could go over the exemption.
Are there any other rules to be aware of?
HMRC make some stipulations in order for the events to qualify. These are:
- The exemption only applies to annual events like summer barbeques or Christmas parties. It will not apply to ad hoc staff meals occurring throughout the year.
- The event must be open to all employees, or at least all employees in a particular area. So for example if you had an office in Medway and an office in Doncaster, you could hold a separate Christmas party in each area but all staff from that area must be invited.
- We’ve said how the cost of the event includes VAT, but if the business is picking up the transport costs it is important to also include those.
What if the £150 annual exemption is exceeded?
This will mean the benefit will need to be reported to HMRC so that the relevant tax is paid. In this regard, the business could elect to opt into a PAYE settlement agreement which will mean that it picks up the relevant tax bill rather than the individual employees.
At Veritons we specialise in advising owner managed businesses of their accounting and taxation positions. If you would like to discuss any of the above or other factors effecting your business, hit the button below to arrange your free discovery meeting.