Staff Christmas Party – Tax

Having been significantly disrupted last year by Covid-19, no
doubt we are all looking forward to a more normal Christmas this
year. Many will soon be organising the staff Christmas party, which
can present an excellent opportunity to enhance staff morale and
motivation, particularly following the recent difficult period.

It is good news that the cost of a staff Christmas party can
typically be claimed as an allowable business expense. To be
exempt, and not have to report anything to HMRC or pay tax and
National Insurance, the party (or similar social function)
must:

• be open to all employees. If your business has more than one
  location, an annual event that is open to all staff based at one
  location still counts as exempt. You can also put on separate
  parties for different departments, provided all employees can
  attend one of them.




• be annual (such as a Christmas party or summer barbecue).




• cost £150 or less per person. This limit can cover
  multiple events, if the combined cost of the events is no more than
  £150 (VAT inclusive) per head. The total cost of the party is
  the whole cost of the event, from the start to the end. It includes
  food, drink, entertainment, taxis home, overnight accommodation,
  etc. The limit of £150 per head is calculated based on all
  those attending the function, not just employees.

So, if employees can bring guests, the total cost should be
divided by the total number of employees and guests attending.
While it is hoped events will be in person this year, it is useful
to note that this also applies to online or virtual parties.

Typically, the VAT can be claimed in full on staff entertaining
costs. However, please note that the definition of employees for
VAT purposes does not include partners/spouses of staff or former
employees.

Therefore, if guests are invited it will be necessary to
apportion the relevant costs appropriately. Please also note that
if an event is provided only for directors, partners, or sole
proprietors, HMRC will not accept that input tax has been incurred
for business purposes.

You may also be thinking of rewarding staff with a Christmas
gift. Presents paid in cash to staff will be taxable as earnings in
the normal way (subject to tax and national insurance). The same
tax treatment also applies to vouchers exchangeable for cash, with
the employee taxed on the full value of the voucher.

Vouchers exchangeable for goods and services only (non-cash
vouchers) are also taxable and must be reported on the
employee’s form P11D. Class 1 national insurance will normally
need to be deducted through the payroll.

However, you may wish to give employees a seasonal present, such
as a turkey, a bottle of wine or box of chocolates. Provided the
cost of the gift is ‘trivial’ – typically less than
£50 a head – the gift will usually not be taxable.

Keeping fingers crossed for a happy festive season.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.