With the festive season fast approaching, it’s time to start planning your Christmas celebrations.
Searches for Christmas parties are up this year by 104% compared to the last. Employees are keen to celebrate and mingle over the holiday season, so be sure to keep up the Christmas tradition and wrap up the year with some team spirit.
Stevie Heafford, Tax Partner explains how businesses can make smart savings thanks to Christmas party tax breaks from HMRC.
“Lots of employers organise a Christmas party at the end of the year to reward their staff. The tax exemption applies to each tax year, so employers can actually put on both a summer party and a Christmas one, and the employees will enjoy some tax-free festivities, so long as the total cost for both is less than £150 per head. Remember if you spend a penny over the limit, the entire amount spent on that party becomes liable to Income Tax and National Insurance.”
Five ways to benefit include:
For the event to be tax-exempt, it needs to be open to all employees in one location. For instance, if your company has offices in London and Manchester, you could receive the exemption on a party for all London-based employees, as long as everyone is invited. Larger employers can have separate parties for different departments, but everyone at a location must get an invitation to something.
You will not have to report anything to HMRC if the event costs less than £150 per person who attended. This is inclusive of all guests and does not only account for employees, so be sure to make a note of plus ones.
The cost per head is all-inclusive so it doesn’t just cover the mulled wine and mince pies – all food and drink, transportation and overnight accommodation should be included within this figure.
Remember, if you go over the £150 per head limit, you will be taxed on the whole cost, not just the excess amount, so be vigilant and keep track of every penny and try to keep in budget.
You can get an exemption across multiple events throughout the year, with the condition that they add up to less than £150 per head. For instance, if your summer party cost £60 per head and your Christmas party cost £90 per head, you would be able to claim a tax exemption for both.
The party must be an annual event though – special celebrations such as a notable anniversary won’t qualify.
We’re sure that no Chancellor would appreciate being compared to Scrooge…but the £150 limit has been the same since 2003 – back when the average pint of lager cost less than £2.30!
If you do go overboard with the festivities and spend over the head cap, the cost attributed to each employee (and any plus ones) for the ‘guilty party’ will unfortunately have to be included on their P11D forms. This means they would have to pay tax on the expense as if it were an employee benefit.
To avoid this not-so-merry scenario, you can contact HMRC to arrange a PAYE Settlement Agreement, so that the tax and national insurance can be covered by the business, not the employees.
If you’re feeling generous, you can give employees gifts tax-free, so long as the cost does not exceed £50 (including VAT) and the gift isn’t cash or a voucher. Provided that you stick to the £50 budget, this could include another hospitality event that still won’t count towards the £150 limit.
Stevie adds: “By adhering strictly to HMRC’S parameters, it is possible to have a tax-free Christmas party and save your business money at the same time. If you are unclear, we would always recommend seeking professional advice or contacting HMRC to find out what is included.”
If you have any queries then please get in touch with Stevie Heafford.
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