A staff Christmas party is a way to celebrate the festive season with colleagues and let your hair down after a long year of hard work.
So how does our tax system join in with the festive spirit at Christmas?
The cost of an annual party, whether at Christmas or any other time of year, is an allowable business expense for corporation tax purposes provided it is not incidental to the entertainment of others. Glad tidings for staff!
Where customers or suppliers are also invited careful consideration of the apportionment of the costs between staff entertaining and client entertaining will be needed. Even at Christmas client entertainment is not tax deductible!
In true Christmas spirit, the tax system does not treat the party costs as an employee taxable benefit. Provided the party is paid for by the business and amounts to less than £150 per head in total. The event must be open to all employees. No one should be left out in the cold at Christmas!
Top tip – other costs to include
Don’t forget to include all the costs of the party including transport and other incidental costs when assessing the £150 cost.
Where the threshold is exceeded on one event, the whole of the costs are a taxable benefit-in-kind, not just the costs over and above £150. Some businesses agree a PAYE Settlement Agreement (PSA) with HMRC so the employer picks up the employees’ tax charges. After all, who would want a tax bill as a result of a Christmas party?
Christmas is all about giving and the tax system recognises this. Employers can gift employees ‘trivial’ seasonal presents such as a turkey, chocolates or a bottle of wine (reasonably priced!) without there being a taxable benefit. Unsurprisingly, vintage wines and hampers are unlikely to meet the ‘trivial’ criteria! But if employers are feeling generous they can also pick up the tax cost through a PSA if they want to reduce the burden on employees.
The exemption also extends to gifts from third parties. So where an employee has had contact with a customer or client through their employment duties, and receives a gift, it will not be treated as a taxable benefit – provided gifts are not cash or vouchers and do not exceed £250 in value.
Overall the tax system can be kind and generous over Christmas. But, as with all tax legislation, there are limits, conditions and thresholds to be aware of. Make sure you are making the most of the tax advantages available.
Enjoy the festivities!
For more information
If you would like to discuss the tax treatment of entertaining or gifts, please contact:
Linda Warner or Chris Boulet, or call us on: