So you’ve got the Christmas party plans all wrapped up and whilst it’s a wee bit early to think about the arrival of Old Saint Nic you need to ensure you’re not going to get taxed on your Christmas celebrations.
There’s an annual party exemption, available to all employees in the business (or a specific location). Did you know that allowance is £150 per person, so £125 before VAT. And this includes the whole sha-bang, so if you’re putting on transport, food, drinks, accommodation… tot it all up and divide it by the number of guests, and this number needs to come below £125 + VAT for each party goer. The exemption is an all or nothing exemption and not a tax free amount, so you spend £152 per employee on that all out Christmas Party then the whole thing is taxable!
A plus one
Great to note when calculating the cost per person, it is the total cost divided by the total number of attendees, not just the total number of members of staff your company has! So if your colleagues get their partners invited too, its £150 each not £150 per employee.
Watch the guest thing though, as you’ll find out more below.
If you partied in the summertime
If you held an annual summer BBQ then remember the exemption is £150 in total for your annual celebratory event. So happy days if both of your parties come in under this, if they don’t then one of these events will become taxable.
‘I’m not inviting my whole team, I’m just holding a social event just for selected employees.’ The annual parties exemption doesn’t apply then, however it’s worth looking at trivial benefits to see if it falls under £50 and will qualify. The importance here is ensuring that its not a reward for past, present or future service and it’s just a mini celebration!
Eeekkkk might I have a festive tax bill?
Hopefully this partying hasn’t caught you out, but if it has… How would it be taxed? On employees P11ds or on a Company PSA… If these sound like baubles to you drop me a note in the comments and I will shine a light on the topic!
Here’s a scenario for you
ABC Limited holds a Christmas party and costs £65 per head. They also hold an annual summer party at a cost of £115 per head. As both in total exceed the £150 the company can choose which event will be taxable. It makes sense, if no guests (plus ones ) were invited to choose the summer party.
But hang on! That rule of splitting the Christmas Party costs by all attendees which made £65, but when you come to tax it, then a member of staff is taxed on their plus one, so (£65 x 2) £130. So in this instance, you’d choose the Christmas Party to fall within the exemption, and tax the summer party.
What about the VAT?
A VAT registered employer will be able to claim full VAT recovery for all staff at the annual firm’s party. In addition, any business that has not appreciated the potential for VAT recovery can claim back the VAT on past Christmas parties for up to three years. A ‘reasonable’ contribution per guest towards the cost of the function should be sufficient to allow full VAT recovery for any guests (spouses/partners) that attend.
Is it tax deductible?
From a corporation tax perspective, Christmas parties for staff are tax deductible! So have a taxless company Christmas and treat your employees to a party they’ll talk about after the tax year ends.