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Tax breaks for Christmas parties

The John Lewis Christmas advert is on our screens, the mince pies are on the supermarket shelves and Christmas party season is upon us - just don’t overlook the tax implications!

 

The good news is that tax breaks are available for employers planning their annual Christmas party.

Any business providing social functions and parties for employees normally has certain tax and national insurance reporting obligations.

Employers are exempt from reporting anything to HMRC, including tax and national insurance, if the party:

  • costs less than £150 (including VAT) per employee;
  • is annual, such as a Christmas party or summer barbecue;
  • is open to all employees.

The cost of a function includes the cost of the party, transport to and from the function, and/or overnight accommodation.

Larger businesses with different locations may find it difficult to get everyone together at a certain place and time. Fortunately, they can take advantage of the exemption by putting on multiple parties so long as every member of staff is able to attend.

Customers, spouses or partners of employees are included in the exemption, but the primary purpose has to be to entertain staff. If the number of customers exceeds the number of employees the exemption will certainly be lost.

Employers should also be aware that £150 per head is an absolute limit. If the function costs £151 per head there is no exemption at all. The tax and national insurance charge applies to the whole £151.

To establish the cost per head, the total cost is divided by the number of attendees. If this produces a figure of £150 or less and the other criteria are satisfied then the exemption applies.

If any of the events are not exempt, an employer must report the costs to HMRC and pay national insurance contributions (NICs) on them. The employees will have a personal tax liability unless the employer enters into an agreement with the taxman to pay the tax for them.

If an employer has already used up the £150 limit on another annual event, it will have to report any extra events to HMRC even if those events cost less than £150 per head on their own. If there are two annual functions the exemption can apply to both provided the cost of both together does not exceed the £150 limit. If it does, the employer will need to decide which function should be eligible (this would normally be the event costing most per head provided it does not exceed the £150 limit). 


 

For more information, please do not hesitate to get in touch with our tax team. 

14 Dec 17
Colin Tice