Tax and the Christmas party

By Stuart 10 years agoNo Comments

Christmas is drawing in on us at an ever increasing pace and at this time of year we, as business people, think about how to reward our teams for a hard years work.  A great way to do this is to throw a Christmas “bash” free of charge to attendees.

Employers can spend up to £150 a head annually on staff events, without HMRCE treating it as a taxable perk.

However, there are a few things that you need to be aware of and, if they aren’t followed, could cost you or your staff dearly.

  1. The allowance is £150 – on the nose. Go just £1 over this and the entire event becomes taxable, not just the excess.  The taxable benefit becomes £151, which means that tax and national insurance must be added on top.  This would make the event very expensive, either for the employer or the employee.
  2. You can spend the £150 on virtually anything you like, but make sure you keep the taxi fares and hotel accommodation within the £150
  3. The £150 also includes VAT, so be aware of including VAT in your budget
  4. The event must be open to all employees, not just a select few (although not all have to attend).  You can also extend the invitation to partners/ spouses and they too can benefit from the £150 allowance
  5. You don’t have to limit yourself to just one function a year.  You may decide to have two events a year at a cost of £75 each.  Be aware though, if the second event costs £76, then the whole £76 becomes a taxable benefit.
  6. Only annual events qualify, so going to the pub on a Friday teatime is out.  HMRCE have been known to pursue tax on an event which, despite it being within the limits, was to celebrate the companys 40th birthday.  Whilst this is an extreme interpretation of the rules, you need to weigh up the risk against the benefit

The HMRCE approach is to aggregate the cost of the event and divide it by the number of attendees, so there’s no need to worry that John in Marketing ordered the fillet steak!  Do make sure, however, that you keep accurate records of the costs of the event, and whatever you do – Don’t forget to close the free bar in time!

  Corporation TaxGeneral BusinessTax
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