Yes, it’s that time of year again! If you’re just about to book your Christmas Party – consider these tips to make it as tax efficient as possible…

Generally speaking, the cost of your businesses annual Christmas party is allowable as a deduction for tax purposes. However, the cost is only deductible if it relates to employees and their guests, which would include directors in the case of a company, but not sole traders and business partners in the case of unincorporated organisations.

As long as you meet the criteria below there will be no taxable benefit charged to employees:

  • The event must be open to all employees based at a specific office location.
  • Your office Christmas party is not taxable for those attending provided that the overall average cost per head of the functions does not exceed £150 p.a. (inc VAT).
  • The guests of staff attending are included in the head count when calculating the cost per head attending.
  • All costs must be taken into account, including the costs of transport to and from the event, the cost of any accommodation provided and the value must include the VAT.
  • The total cost of the event is divided by the number attending to find the average cost. If the limit is exceeded then individual members of staff will be taxable on their average cost, plus the cost for any guests they were permitted to bring.
  • VAT input tax can be recovered on staff entertaining expenditure. If the guests of staff are also invited to the event the input tax has to be apportioned, as the VAT applicable to non-staff is not recoverable. However, if non-staff attendees pay a reasonable contribution to the event, all the VAT can be reclaimed and of course output tax should be accounted for on the amount of the contribution.
  • If these limits are breached employers can pick up the tax cost by using a PAYE settlement agreement.

What about ‘Trivial’ or ‘Seasonal’ gifts for employees?

As an employer you may provide employees with a seasonal gift, such as a turkey, on ordinary bottle of wine or a box of chocolates at Christmas. Gifts of this nature can be treated as trivial or seasonal benefits.

Please bear in mind that VAT is chargeable by the employer when an employee receives gifts totalling more than £50 in a year. Turkeys, however, are still zero rated for VAT purposes!

To find out more about this article please contact us.