Christmas Parties: HMRC and Tax

You’re organising your event; you’ve booked the DJ and the catering, but will you have to keep some budget back for a nasty tax bill, or can you order more vol au vents?

christmas party

When employers provide benefits to their employees, there are usually tax and National Insurance consequences. But provided your staff party meets all the conditions, there is nothing to report to HM Revenue and Customs (HMRC), and no benefit-in-kind tax or National Insurance.

Conditions

These conditions apply to all parties or similar social functions; they must:

  • be open to all your employees
  • be annual, such as a Christmas party or summer barbecue
  • cost £150 or less per person

The tax exemption also applies to online or virtual parties.

If you hold multiple events a year, the £150 applies to the total of all events.

Be careful not to exceed £150: it’s an exemption, not an allowance. Cost £150.01: the whole amount is taxable, not just the £0.01 excess.

You can invite employees’ partners and other members of their family or household.

Even if you’re VAT-registered, the £150 applies to the cost, including VAT.

You can also provide transport and/or overnight accommodation if these are provided to enable employees to attend, but the costs of these count towards the £150 limit.

It doesn’t matter if the costs for some guests exceed the limit, so long as the average costs stay under.

For further reading, please see HMRC’s quick guide, the relevant HMRC manual, and some HMRC examples.

If you’re considering staff gifts, please see our article on Trivial benefits.

Client entertaining

Employers cannot claim a tax deduction for client entertaining. Where clients attend your Christmas party, the costs have to be apportioned between them and employees for tax purposes.

VAT

VAT on client entertaining is not recoverable, though it can be for employee entertaining. The definition of employees for VAT purposes excludes partners of existing staff, or former employees, so VAT claims have to be apportioned where a party includes guests.

VAT should not normally be reclaimed where any entertainment is provided only for directors, partners or sole traders, unless they attend the party with other staff members.

We’re here to help: contact us today for expert tax advice.

About Graham

Accountant specialising in tax, property, and estate planning. A regular speaker at landlord, property Investor, and later life planning events.

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