A tax guide to festive staff parties and gifts
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A tax guide to festive staff parties and gifts
In this article we'll look at the tax breaks associated with festive gatherings and other tax efficient ways to make a difference to your team this Christmas.
The cost of living crisis has prompted some bosses to think slightly differently about how best to show appreciation for their staff. We’ll cover that too.
What party costs are tax deductible??
Whatever the size of your business or gathering, the cost of entertaining staff at a Christmas party is tax deductible and the spend can be deducted from your profits before tax, as long as you spend no more than £150 per head. This figure must take into account all costs, including venue hire, prizes, bar bill, taxis home and overnight accommodation. If you exceed £150 per head the total costs will have to be included on an employee’s P11d. The £150 limit can also be applied to spouses and partners, effectively doubling the allowance and scope for generosity. You can claim back the VAT element of the bill on the employees cost but not the partner or spouse cost.
Things to be aware of:
- If the cost of the event averages out at even £1 over the limit (£151), the entire event costs will be taxable as a benefit in kind, not just the £1.
- This is an annual limit, so if you throw a similar event in the summer, you’ll need to make sure you haven’t spent more than £150 per person in total over both events.
- The function must be open to all employees, or all staff within a geographic area. It cannot be applied to specific teams or groups.
- Qualifying events must be regular annual functions, like a Christmas party or annual Summer ball.
Gifts
Non-cash Christmas gifts and vouchers to staff up to the value of £50 are generally exempt from tax and National Insurance under the trivial benefit exemption, as long as the £50 annual limit hasn’t been exceeded during the year. The gift must be available to all employees as well.
A lot of employers are choosing to give a cost-of-living cash bonus this year, to help employees meet rising energy bills and cope with inflation. Whilst this kind of payment is subject to tax in the usual way, it will undoubtedly be appreciated by staff and is a kind and generous move which fits in nicely with the spirit of the festive season.
Equally, employers who offer staff extra time off to catch up on their Christmas shopping or watch their children’s festive school production may not gain any tax advantage, but they will benefit from happy, grateful and hopefully less stressed employees.
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