Make sure the taxman doesn’t get a Christmas bonus from your festive celebrations

18th November 2011

... Comments

Staff parties are potentially tax-free. HMRC's festive gift is limited though, as companies are allowed an annual tax-free, VAT inclusive amount of up to £150 per head. The calculation is shown later in this article.

This VAT inclusive total not only covers food and drink, but also accommodation and transport home if the employer pays for these. The number of guests can also include non-employees such as partners. The employer will get tax relief on the total cost.
The rules apply to any annual party or similar function, which must be open to staff generally or to workers at a particular location.
The tax-free limit applies for a tax year, so if the employer puts on a summer party and a Christmas dinner which together cost less than £150 a head, both will be tax-free for employees.
Divide the total cost of the function(s) by the total number of attendees (including non-employees) to arrive at the cost per head. Spend one penny more per head than the annual allowance, and the full amount spent will become liable to income tax and National Insurance (NI) for both staff and employer alike.
If the per head figure calculates at, say, £180.00, and an employee took their partner, then they would be liable for personal tax on £360.00 as this would include the costs associated with their partner.
Remember, this is an exemption, not an allowance.

This summary is based on our understanding of HMRC guidelines and may not apply to your circumstances.

Accounting Matters - The Friendly Face of Accounting.

About the Author