What are the tax rules around staff Christmas parties?

It’s that time of year again. As we all start to wind down towards Christmas, many businesses are in the midst of planning their  Christmas parties and festive gatherings! If you’re planning a Christmas party, it’s important you understand the tax rules and exemptions around staff parties.

Of course, it’s worth noting that these rules apply to an annual party – that party doesn’t necessarily have to be for Christmas!

Read on to find out more about the tax rules around staff Christmas parties…

What are the conditions for the annual staff party tax exemption?

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For the party to qualify, it must meet the following conditions:

  • It must be an annual event
  • It must be open to all employees
  • It must cost no more than £150 per head
  • If any employees within the organisation are not invited, the party will not qualify for the exemption. So, if the party or event is only open to the company’s directors, or employees of a certain level, it will not qualify for the exemption.

Of course, if employees are invited but choose not to attend, or are unable to do so, the event will still qualify as all employees were given the opportunity to go.

Under the Christmas party tax rules, how much can I claim per employee?

The exempt amount for an annual staff party is up to £150 per head. This can include all expenses associated with the party, including transport, food, drink, accommodations, and any other related costs.

If the cost of the party goes over £150 per head, the total costs is no longer allowable and may trigger benefits in kind taxes. So if, for example, the party comes to £160 per head, the full £160 must be included on each employee’s P11D via PAYE.

 Can employees bring guests?

Under exemption rules, guests can be invited to the event, and they are included in the headcount so you can spend up to £150 per guest and this will be covered in the exemption.

There is no limit on the number of guests that can be invited, however, HMRC are likely to view an excessive guest list as an attempt to avoid tax, meaning the event could be seen as failing to meet the “wholly and exclusively necessary” test.

As a general rule, it’s best to limit numbers to employees and their plus ones.

Does the annual party have to be a Christmas party?

No, the party does not have to be in December, or even for Christmas at all. It just needs to be an annual event. Some companies choose to hold an annual summer party instead, for example.

And, in this context, annual doesn’t even mean that the event is held at the same time or for the same purpose each year. It simply means that one party is allowed per year for the purposes of the exemption.

The £150 per head exemption can also be split over multiple events throughout the year. If more than one event is held in a year, the business can specify which ones should be taken into account in order to make the most of the £150 exemption.

What is the HMRC limit on gifts to employees?

As long as you follow HMRC’s rules, companies are allowed to give their employees gifts, providing they do not exceed a value of £50. For example, many employers also choose to hand out Christmas gifts at their Christmas party too! Trivial items such as wine or a box of chocolates under £50 are perfect.

Cash bonuses & vouchers

When considering whether or not to give your employees a gift at Christmas, it’s worthwhile keeping in mind that any employee Christmas gifts paid in cash will be taxable. This is also the case for gift vouchers too!

Gifts to customers

Many businesses like to give their clients gifts during the festive period however, it’s worthwhile keeping in mind that the only gift except from tax rules is a small gift that also advertises your company.

Food and drink are excluded and  your company logo must be on the item, not just the wrapping.  For example, many businesses choose to send gifts such as diaries for the New Year ahead, branded stationary, mouse mats or umbrellas!

Why choose React Accountancy?

Here at REACT Accountancy, we offer trusted accountancy services to start-up, established, and multi-national businesses across a diverse range of businesses.

From the moment you get in touch, our approachable, friendly and professional team will go above and beyond to ensure that you receive the right advice, support and accountancy solutions for your business, including guidance on tax exemptions.

And, all of our team has years of experience in providing accountancy services that support your business including complex financial issues.

Get in touch today for further information about any of our services.

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We believe in working with our clients to make accountancy services easy. Get year-end accounts, CT600 corporation tax, payroll, bookkeeping and management accounts made easy.