HMRC and the staff Christmas Party
It’s the time of year that businesses are planning the staff Christmas party for staff, their partners/spouses, clients and possible new clients.
The cost of a staff party or other annual entertainment is generally allowed as a deduction for tax purposes but you have to meet the criteria set out by HMRC. If you can do this then there is no requirement to report anything to HMRC or pay tax and National Insurance and neither will there be any liability for your employees. So what are the rules ?
a) The annual Christmas party or some other annual event such as a Summer BBQ offered to staff generally, is not taxable on those attending provided that the average cost per head of the function does not exceed £150.
b) The event must be open to all employees and if a business has multiple locations, then a party open to all staff at one of the locations is allowable. You can have separate parties for separate departments, but employees must be able to attend at least one of the events.
c) If you were to run more than one annual party then this is allowed provided that the total cost of these parties is under £150 per head. If this is the case then there is no chargeable benefit. However, if the total cost per head goes over £150 then whichever functions best utilise the £150 are exempt and the other event becomes taxable. It is worth noting that the £150 is not an allowance and any costs over £150 per head are taxable on the full cost per head not just the excess.
d) You don’t have to maintain a running total by employee but a cost per head per function and all costs including VAT must be considered. This would include such things as the cost of transport to and from the event, the food, drink and whether you pay for any accommodation.
If you are VAT registered then you can recover this subject to the usual rules but if staff bring thier partners or spouses then the input tax has to be apportioned as the VAT applicable to non-staff is not recoverable.
If non-staff attendees make a contribution to the event then all the VAT can be reclaimed and of course output tax should be accounted for on the amount of the contribution.
Quite a generous “allowance” from the taxman so even he tries to get in the party spirit !