Christmas parties are a tax-deductible allowable expense, given that it is primarily for entertaining staff and not incidental to entertaining others, such as customers and suppliers.
Is a Christmas Party a taxable benefit for my employees?
Christmas parties are not classed as taxable benefits, given they meet the following criteria:
- Not all staff have to attend, but all staff must have the option
- The event must not just be for directors unless all your staff are directors
- Total costs do not exceed £150 per head, inclusive of VAT
- The total cost refers to the entire cost, including expenses such as transport
- The £150 limit per head applies to the total headcount including guests in addition to staff, such as partners and family
- The £150 limit per head is an annual limit rather than a limit for each event; therefore, if you had a summer party that cost £50 per head, only £100 per head would be available to spend so as to avoid any taxable benefits
What if our Christmas party costs more than £150 per head?
There is no monetary limit on the amount an employer can spend on annual events; however, if the expense per head is more than £150, then the total amount becomes a taxable benefit, and this can be accounted for in two possible ways:
- The total amount for each staff member, and their partner or families, will need to be included on their P11Ds which will result in them paying tax on this amount as if it were normal employment income. The business will also be required to pay Employers National Insurance at 13.8% on the total benefit.
- Instead, you as the employer can set up a PAYE Settlement Agreement (PSA) with HMRC, which agrees that you will settle the additional tax and national insurance.
Is the VAT reclaimable on Christmas party expenses?
If your business is VAT registered, you will generally be able to reclaim the input VAT attributable to the event so long as the primary function is to entertain or reward staff. There is a VAT block on entertaining expenses relating to customers and suppliers etc. therefore if the employees are there to act as hosts for non-employees, then the VAT won’t be reclaimable. Finally, it is only the VAT relating to staff that is reclaimable; therefore, unlike the rules for benefits in kind, VAT that relates to employees partners or families cannot be recovered.
If you have questions regarding the above, please contact me on 01803 296678 or andrew.price@andrewprice.co.uk
