CHRISTMAS PARTY! -WHAT ARE THE RULES!?
It is the season to be Christmas Partying! However, to make sure you are on HMRC’s nice list, you need to know what expense for a annual staff event is deductible and what the rules are.
Let’s explore what the season to be giving can benefit not only your team morale but also your accounts by understanding what you can claim for!
Christmas parties for staff – are they a tax-deductible expense?
In normality, entertaining staff is a tax-deductible expense for businesses. If your business wants to be extra generous, you can also provide entertainment for your staff’s partners as well!
Don’t get confused with entertaining customers though with non-staff attended events. These have different costs apportioned and are not tax deductible.
Staff Benefits Vs Santa’s Christmas Party!
In short, the answer is no. A staff benefit is something like a trivial benefit. HMRC’s very own Santa has made sure the festive parties are tax free. However, to make sure you are on the right list the event must meet the follow criteria:
It must be annual party – no Christmas parties all year round!
- It must be available to everyone. So, you cannot make your own naughty / nice list and invite only a selection of people.
- You must budget a maximum of £150 per head (including VAT). Remember Christmas is about the giving not the receiving but don’t give too much!
What is an annual event?
We might all want Christmas all year round, but it only happens once a year to preserve the magic otherwise we might all turn into Grinches. An annual event only happens once a year. Just like Christmas!
That isn’t to say you cannot have a Summer Party or an Easter Party! Just make sure it only happens once a year and is only expected to happen once a year. You cannot have a party every week!
You might be asking, “what if I throw a party of one of the Christmas Elf’s (Edna from accounts) retirement?” This only happens once, and Edna will not be expected to retire every year. This therefore would not constitute an annual party.
Do I have to invite and make sure all the staff attend?
Yes, you must invite all your staff to the Christmas party – no leaving any of the Elf’s out! If you do leave anyone out, this will put you on HMRC’s naughty list and the event will no longer be tax deductible. However, you can split the event across departments / locations (one in the north pole and one in the south) as long as no more than one party is held.
How much can I spend and how is it calculated?
Remember it is the season to be giving but even Santa has a budget. Your event must not exceed £150 per head including VAT.
To calculate this you must take the total cost of the event and divide this by the total number of attendees. This means you have more to spend the more people that confirm they are attending! Make sure you get those RSVPs!
Now, some people will have partners and as we know, Christmas is the time for family. This means you can invite partners of your staff to these annual events. For every partner attending this will be an additional £150 per head including VAT.
Calculation: Total Cost of Event Including VAT Divided By (Total No of Staff Attending + Partners).
Example: £3000 (cost of event including VAT) / 10 Staff + 10 Partners = £150 per head
What expenses can be included in the budget?
The £150 per head will include everything from accommodation to travel to drink / food to entertainment! This means no one should end up getting coal for Christmas! If the business pays for something for the event, this will be included in the overall cost of the event.
This is where you need to be careful not to overspend! So buying 1000s of Christmas decorations might mean no one gets a Christmas dinner! Don’t forget the VAT is included as well!
Is the £150 an allowance? What happens if I am overly generous and go over the £150
If you go over the budget expect to be moved to HMRC’s naughty list immediately. This will mean the full cost of the event will be non-deductible. For example, if you calculate the total cost incorrectly and later discover it was £160 a head not £150 this would mean none of the event is tax deductible. Make sure you get your figures right and this is something we will be happy to support with!
What happens if there are 2 annual events?
Now what happens if you have a Christmas Party, a Summer party and an Easter Party? To start with you are a generous employer! Secondly the £150 per head is per year not per event.
The same qualifying rules must be applied to all events you host for staff.
What if the Elf’s contribute to the party to make it even more magical?
The short answer is no. The staff cannot contribute to the Christmas party and raise the budget!
How do I alert HMRC if we blow the budget?
If the cost has exceeded £150 per head, then the company will need to alert HMRC by reporting a benefit in kind due for each staff member. There are several ways of doing this but the most common is to report the benefit on a P11d.
This means both the employee and employer will need to pay additional taxes. That would be like getting coal for Christmas!
What is the staff Christmas Party is exempt?
What you will need to do is keep all the paperwork which proves it was exempt if later required. Don’t worry they don’t need to be reported!
What about Christmas gifts?
In summary, gifts to employees under £50 will qualify as a trivial benefit, which are tax free.
Gifts to employees under £50 are normally trivial benefits which are tax free! Check out this Article on Trivial Benefits to learn the rules relating to these!
More information relating to the above can be found on HMRC’s website:
https://www.gov.uk/expenses-benefits-social-functions-parties
https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21690
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