It might seem a little early to be talking about Christmas, but if you want to make use of this tip you’ll want to know about it in advance!
It’s nice to reward staff for all their hard work and celebrate the festive season with some kind of event, but there’s a lot of confusion surrounding what is and isn’t taxable.
You’ll be happy to know that HMRC are pretty generous in this respect, and actually allow a £150 (incl VAT) per head exemption. But what does that actually mean in practical terms?
The £150 per head applies to employees, directors, and their family members. You can even invite some clients along – however, the party needs to be mostly for staff, so you can’t outnumber them with people who don’t work for the company! It also needs to be open to all staff, so a party that was only for directors would not be eligible.
Now, earlier I mentioned that this was an exemption (rather than a benefit or an expense). What that means is that it’s not £150 per person to offset against a higher cost – the total per head must come to under £150. If it comes to more, the whole amount becomes taxable and you can’t use the exemption. You just need to make sure that the total cost divided by the total number of attendees comes to under £150. If you don’t know the exact number of guests you are allowed to estimate based on plans or agreements e.g. the number you told the venue when you booked in the first place.
You can include all kinds of things such as accommodation and travel expenses. For companies like ours, who have employees spread across the country who convene at our London office at Christmas time, the costs include travelling and hotel as well as the Christmas party itself. Some individuals travel further than others, so the costs for those individuals might be quite high, but it doesn’t matter as long as the average is below £150 per head across all attendees.
One key thing that a lot of people don’t realise is that it doesn’t have to be a Christmas party. It has to be a regular annual event, but it can be a summer barbecue or a Hallowe’en party instead – or as well! However, if you have more than one annual party the £150 has to be split between the two – so the sum of the cost per head of both parties would still have to be below £150. If that’s not possible (let’s say for example that the cost per head was £80 for one party and £75 for another), only one of the events would be eligible for the exemption. You can’t claim exemption on the whole cost of one party and just part of the other.
As with all other aspects of your business expenditure, you need to make sure you keep clear records; in the case of your annual party these records should include how the cost per head was calculated.
HMRC’s official guidance can be found here.
They’ve also got some example scenarios here.