Christmas parties – beware a tax hangover!
Christmas is racing up and businesses all over the country are making plans for an annual festive bash. Many companies still like to treat their staff to an expenses-paid party in December, as a way of saying thank you for all their hard work throughout the year.
But it's worth remembering that there are set limits on how much bosses can spend on entertaining employees - bust the limit and staff could be landed with a tax liability that's sure to take the shine off a glitzy night out.
The good news is that the costs involved in putting on a Christmas party is a tax deductible expense for the company. And there are no tax or national insurance implications for staff so long as certain conditions are met. Here's a reminder of the rules:
- Companies can provide an annual event and reclaim the costs against the company as long as the total cost per employee does not exceed £150 (including VAT)
- The £150 limit must take into account all costs e.g. accommodation, venue hire, transport, food and drink
- The event must be open to all employees of the company. Partners may also attend, but the £150 limit applies to them, too
- The £150 is an exemption, not an allowance. This means that if the total cost of the party adds up to £151 per head, the whole amount will be taxable on the staff attending as a benefit in kind – not simply the £1 overspend
- The £150 limit is for the whole of the tax year. It's possible for companies to split the allowance, for example spending £75 per head on a summer party and £75 at Christmas
The message is clear. If the £150 limit is exceeded, the party must be considered a benefit in kind and reported on your employees' P11D forms. It is then liable for tax and national insurance at the usual rates.
If your company is in the throes of party planning and you're close to the £150 limit, it may be worth discussing the issue with staff. You could request a modest contribution to keep costs within the limit, or put a cap on the bar bill.
Need any further information on staff entertaining? At AMR, we can advise you on this and other tax and payroll matters. Don't hesitate to get in touch, either via our contact page
or by speaking to a member of our friendly team on 01892 559480.