December gives us an excuse to let our hair down and enjoy a well-earned celebration with our work colleagues and partners. The cost of an annual staff party or similar function is allowed as a deduction for tax purposes. However, the cost is only deductible if it relates to employees and their guests, which would include directors in the case of a company, but not sole traders and business partners in the case of unincorporated organisations.
Also, as long as the criteria below are followed there will be no taxable benefit charged to employees:
1. The event must be open to all employees at a particular location.
2. An annual Christmas party or other annual event offered to staff generally is not taxable on those attending provided that the average cost per head of the functions does not exceed £150 p.a. (inc VAT). The guests of staff attending are included in the head count when computing the cost per head attending.
3. All costs must be taken into account, including the costs of transport to and from the event, accommodation provided, and VAT. The total cost of the event is merely divided by the number attending to find the average cost. If the limit of £150 is exceeded then additional rules apply.
4. VAT input tax can be recovered on staff entertaining expenditure. If the guests of staff are also invited to the event the input tax has to be apportioned, as the VAT applicable to non-staff is not recoverable. However, if non-staff attendees pay a reasonable contribution to the event, all the VAT can be reclaimed and of course output tax should be accounted for on the amount of the contribution.
If these limits are breached employers can pick up the tax cost by using a PAYE settlement agreement.
If a Christmas gift was decided to be given instead of a Christmas party, HMRC says,
‘An employer may provide employees with a seasonal gift, such as a turkey, an ordinary bottle of wine or a box of chocolates at Christmas. All of these gifts are considered to be trivial and as such are not taxable’.
For an employer with a large number of employees the total cost of providing a gift to each employee may be considerable, but where the gift to each employee is a trivial benefit, this principle applies regardless of the total cost to the employer and the number of employees concerned.
For further advice on this subject and any other area of accountancy or taxation, please contact Sam Carter from our Hastings office on 01424 720222 or email firstname.lastname@example.org or Louise Franklin from our Bexhill office on 01424 730300 or email email@example.com
Member since: 25th November 2014
I work for Ashdown Hurrey, where I qualified as a chartered certified accountant in February 2014.
I joined the practice after completing my degree in accounting and finance at Manchester Metropolitan...