It’s that time of year again where businesses across the country are beginning to start planning for Christmas, including work parties and staff gifts. So we thought you might link a quick reminder n the tax treatment of these seasons’ festivities!
HMRC allows a tax relief of £150 inclusive of VAT per head for “annual parties”. If the cost of the party goes over this £150 allowance then all of the event cost (not just that in excess of £150) is taxable as a benefit in kind for employees.
It is important to note that this allowance is given for one annual event per year. So you are unable to claim relief on multiple events over the year which total up to £150 per head. As such we suggest if you do hold more than one event (e.g. a summer BBQ and a Christmas party) that you claim this allowance on the more expensive event, which is usually the Christmas party.
The £150 limit includes all costs associated for the event such as taxis home, drinks, accommodation and entertainment. If the £150 limit is exceeded then the whole cost must be reported as a benefit in kind and reported to HMRC through a P11D.
The £150 allowance applies to each guest not just employees. This is handy to know if you host a Christmas party and allow staff to bring their partners.
Christmas parties – accounting for VAT
As a standard rule VAT on entertaining costs is not a recoverable expense. However you are permitted to reclaim the VAT on employee entertaining. This means than if partners are invited to the Christmas party you will have to apportion the VAT you can reclaim based on the number of staff and non-staff.
If you pay employees a Christmas bonus to give them some cash to say thanks for a year’s work this will always be included as taxable earnings and both you (the employer) and the employee will have to pay tax and NI on this.
This ruling also includes gift vouchers which means the employee will be taxed on the face value of the gift voucher.
HMRC permit employers to give staff a seasonal gift if the value is considered “trivial”. HMRC have not put a figure on what is considered trivial however a bottle of wine or some chocolates would be deemed reasonable. Should the employee gift be deemed more than “trivial” then this will have to be taxed as a benefit in kind and included on the employees P11D.