Tax on the Staff Christmas Party

Tax Staff Christmas Party

As Christmas Party Season is now approaching, what constitutes as a Staff Christmas Party? More importantly, what is an allowable Christmas Party for Tax Deduction?

Is a Christmas party for staff a tax deductible expense for the business?

Typically the entertaining of staff is a tax deductible expense for the business. This includes not only the entertaining of staff but also their partners.
The entertaining of non-staff such as customers and suppliers is NOT tax deductible.
Mixed events where both staff plus partners and non-staff attend, such as customers will need to have associated costs apportioned.

Is a Christmas party taxable as a staff benefit?

All business’ need to be aware that there is a tax exemption for staff entertaining, if the event is all of the following:
• An annual Party or social function, such as a Christmas party or summer BBQ
• It must be open and available to all staff
• Its costs does not exceed £150 per head (inclusive of VAT)

What qualifies as an annual event?

An annual event is something which happens once a year or is expected to happen once a year. For example the staff Christmas party is a tradition which most businesses provide for their staff annually.
Other examples could include a summer BBQ or an annual day out.

What does not qualify as an annual event?

A one off event which does not happen once a year.
Examples of these include a retirement party, a long service award or a team building event.

Do all staff need to attend the Christmas party or annual event?

For the Christmas party to qualify as a non-taxable benefit it must be open to all staff to attend.
This can be split into locations or departments, so that more than one party is held by the business.
What does not qualify would be a Christmas party for just the Directors of the business.

How is the £150 per head calculated?

For the Christmas party to qualify as a non-taxable benefit the cost must not exceed £150 per head.
It is calculated by adding up the total cost of the event and diving by the total number of attendees.
The total number of attendees is not restricted to staff. Therefore a Christmas event with 150 staff plus partners would be divisible by 300.

What expenses are included in the £150 per head calculation?

Simply put, all costs! This means everything, accommodation, travel, food, drink, entertainment!
Anything that costs any money for that particular event, contributes to the cost of it, no exceptions. This even includes the VAT amount, so if the business pays for it then it is included.

Is the £150 an allowance?

No, if the per head calculation exceeds £150 then the full amount of the Christmas party is chargeable to staff as a taxable benefit. Therefore if the event was £160 per head then the full amount is a taxable benefit.
Should the event be a staff plus partner event then using the above example the taxable benefit would be £320. This would be chargeable to the employed staff member.

What happens if there are 2 annual events?

An important thing to note is that the £150 per head is for the entire year! It is not per an event.
The same qualifying rules must be applied to both parties – Annual event, open to all staff and costs less than £150 per head.

Staff Christmas Party and a Summer BBQ examples:

A business holds a Christmas party and a summer BBQ for all staff. Both events occur every year. The cost of the Christmas party is £100 per head and the cost of the summer BBQ is £40 per head.
Total annual cost does not exceed £150 per head and therefore both events are non-taxable benefits for the staff.
Scenario 2:
If the BBQ had cost £60 per head. The total would be £160 per head.
In this scenario the business can choose which event to treat as exempt and which to declare as a taxable benefit for staff. Therefore in this example the business would declare the summer BBQ as a taxable benefit.

Can staff pay a contribution to reduce the per head cost?

Unfortunately the answer is no.
A staff Christmas party which totals £160 per head is a taxable benefit. Even if you ask staff to contribute say £20 it remains a taxable benefit.

Reporting Obligations?

If your costs go over the magic number of £150 per head your company must report a benefit due for each staff member.
There are several ways to report this but the most common is to report the benefit on a P11d.
Both the employee and employer will be required to pay additional taxes.

Do businesses need to report a Staff Christmas Party which is exempt?

Annual events which are exempt don’t need to be reported. All businesses need to do is retain the paperwork which can prove the exemption if later required.

Where can I find out more information on staff Christmas parties from HMRC?

There are several webpages available to help employers. These include:
https://www.gov.uk/expenses-benefits-social-functions-parties
https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21690

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