Christmas Party Tax Deductions, an Essential Guide
Once again, it’s that special time of year when employers begin thinking about the hallowed office Christmas party. The days of a few cheesy nibbles and a booze up in the office are fast receding, with most employees and businesses preferring a slightly more refined approach to the festive period.
Most workplaces today tend to organise a meal for their staff as a thank you for a year of hard graft, whilst some might find a venue and lay on some entertainment to boot. Some businesses might not be aware that a Christmas parties are subject to a deduction for tax purposes. Now, this may sound like a great way to have a jolly on the government’s dime, but there are stipulations (aren’t there always?) that could end up costing the business a pretty penny if not followed.
It is important that businesses are aware of how far they can push the boat out before HMRC comes calling. By following a few simple rules set out by HMRC, businesses can put together a Christmas bash for the ages, and all without paying a penny of tax.
What is Deductible?
For businesses, an annual Christmas party is not taxable. Many businesses might not know this, as the rules and regulations that govern regular entertaining of staff or customers are completely different in how they work. There is a £150 allowance per head for Christmas events, and this includes all costs associated with the party: food, transport, accommodation, and any other ancillary component to the event. One very important thing to note is that VAT is still payable on all of the fore-mentioned components and is included in the £150 per head budget. This could catch some out, and it is important to consider this.
When one realises this, it becomes a little trickier to stay within that budget and will require some good planning to bring the party in under the deductible allowance. There are a few other things to consider that may trip up some businesses:
The per head cost is calculated by dividing the cost of the event by the number of attendees.
Customers can attend the event and are entitled the £150 allowance, as long as the party is for employees of the business in the main, and not just for customers.
There is no limit on the number of attendees, except if the attendee is a sole trader (a pretty lonely office party that would be) or, in the case of partners, in an unincorporated business.
For the deduction to apply, the event must be open to all members of staff. This is to mitigate company directors having exclusive, expensive Christmas meals and benefitting from the exemption.
Spouses/partners of employees and directors also fall under the deductible allowance, but also count towards the overall headcount for the event. This is an important point to consider as it can greatly affect the amount spendable per head.
VAT input tax (VAT incurred on goods and services used for the business) incurred from entertaining staff can also be recovered. If spouses/partners are present, the input tax divides between them and business employees.
What if the Event Goes over Budget?
If the amount, per head, does exceed £150, then the whole amount is taxable, even if the per head cost is over by a single penny.
If the total price per head does go over that £150 threshold, there is a way to get out of paying the tax that would become payable. As the venue is booked for a business event, it should be under the business’s name. If the £150 budget proves to not be enough, then the business owner or a director can pay the bill themselves. By doing this and claiming only up to the £150 limit from the business, the business itself will not exceed the exemption and will not incur the tax. As in all matters, it is prudent practice to keep all receipts and records of this.
Additional Seasonal Considerations
HMRC also takes into account the fact that employers sometimes wish to furnish their employees with gifts, and have some guidelines surrounding this. The following seasonal gifts are considered ‘trivial benefits’; a turkey, an ordinary bottle of wine or a box of chocolates.
No matter the number of employees, if the gift is a small one-off present like the above, then there is no need to declare it. Anything of a monetary nature, including vouchers, do not come under the trivial classification, even if it may be worth less than a turkey or bottle of wine. There are no set rules as such defining trivial and non-trivial benefits – it is up to the employer to exercise good judgment. A case of expensive wine, for example, is not a trivial benefit (but is the key to a top-notch Christmas…!).
By following the rules set out by HMRC, businesses can provide a festive thank you for their employees, without worrying about the tax implications.