How to make sure your Christmas party doesn't upset the taxman

Nigel Morris, tax director at MHA MacIntyre Hudson explains how to avoid overspending on the staff party.

Image credit: iStock
Image credit: iStock

Nigel Morris is tax director at MHA MacIntrye Hudson. 

 

The good news for employers is that HMRC provides an exemption for a staff Christmas party, as long as the event is annual, open to all employees and costs no more than £150 per head. For many employers this is quite straightforward and they will be well within the limits. But what if it’s not practical to hold a single function? 

Fear not, HMRC has thought about that too, allowing the exemption to apply across separate locations and departments. For businesses with more than one office, an annual event that’s open to all staff based at one location still counts as exempt. Businesses can also put on separate parties for different departments, as long as all employees can attend one of them. 

If an employer provides two or more annual parties or functions, no charge arises in respect of the party, or parties, if the costs per head don’t exceed £150 in aggregate. If it does go over £150, then whichever functions best use the £150 are exempt, and the others taxable.

It’s important to note that this is an exemption, not an allowance. Any functions outside the scope of the exemption are chargeable on the full cost per head, not just the excess over £150. The cost of the function includes VAT as well as transport and/or overnight accommodation if these are provided to enable employees to attend. 

Christmas gifts

As well as a Christmas party, an employer may provide employees with a gift. Helpfully, there is also an exemption for trivial gifts, but there are some conditions.

Firstly, the cost of providing the gift can’t exceed £50 (including VAT). If it does, the full amount is taxable, not just the excess over £50. Another rule is that the benefit is not cash or a cash voucher. 

There must also be no contractual entitlement to the gift or a gift provided as a reward. In addition, just because a gift is provided each year, or is provided to all staff members, it doesn’t mean that the employee has a contractual entitlement to it.

Other considerations

If any of the events an employer provides aren’t exempt, the costs must be reported to HMRC and National Insurance (NI) will be paid on them. This must either be reported on each employee’s P11D form, so the employee personally pays tax on the apportionment, and also detailed on the annual Class 1A NI return (P11D(b)), which is paid by the employer, or included in an annual PAYE Settlement Agreement (PSA), where tax and NIC is paid for by the employer on a grossed-up basis.

Finally, the event or gift must not be part of a salary sacrifice arrangement. If it is, the employer will have to report how much the social functions, parties or gifts are worth to each employee.

For more features and breaking news sign up to C&IT Magazine's daily Newstracker.

Have you registered with us yet?

Register now to enjoy more articles
and free email bulletins.

Register now
Already registered?
Sign in
APAC planners still 'use manual processes' for most of their tasks

APAC planners still 'use manual processes' for most of their tasks

Australian and New Zealander event planners need a more technology-driven approach, according to new research by Cvent.

DICE launched to improve diversity at conferences and events

DICE launched to improve diversity at conferences and events

New charter aims to eliminate 'manels' and offers guidelines for making events more diverse, on and off stage.

Are experiential food and drink incentives on the rise?

Are experiential food and drink incentives on the rise?

Planners reveal what food and drink experiences clients are increasingly requesting, in the C&IT State of the Industry: Incentives report.

World’s most popular destinations for business travel revealed

World’s most popular destinations for business travel revealed

New research draws on official government flight data to reveal locations most popular with UK business travellers going overseas in the last year.

Top agencies speak out amid warnings the coronavirus response came ‘too late’

Top agencies speak out amid warnings the coronavirus response came ‘too late’

With reports that another key congress may be cancelled, agencies explain how they have been taking stock.

Delta commits $1 billion to become first carbon-neutral airline

Delta commits $1 billion to become first carbon-neutral airline

The airline makes 10-year commitment to mitigate all emissions from March 2020.

Smyle forecasts 50% turnover growth in 2020

Smyle forecasts 50% turnover growth in 2020

Agency features on the Sunday Times International Track 200 and predicts big things for the year ahead.

Deadline extended for A-List 2020

Deadline extended for A-List 2020

We’ve extended the deadline for entering this year’s awards celebrating 35 incredible event professionals under 35.

In pictures: The Mayfair Townhouse to open September 2020

In pictures: The Mayfair Townhouse to open September 2020

Iconic Luxury Hotels' new London property will have 172 rooms, a bar, a private gym and event spaces.

Incentive review: An action-packed countryside weekend at Gleneagles

Incentive review: An action-packed countryside weekend at Gleneagles

A luxury Scottish escape with whisky tastings and outdoor activities including clay-pigeon shooting and archery.

LATEST JOBS