HMRC’s tax benefit for the office Christmas party

Hillier Hopkins LLP

Chartered Accountants & Tax Advisers

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The office Christmas party is for many the highlight of the year. It is the opportunity for employers to say thank you to staff for all the hard work over the past year and for colleagues to let their hair down and have a little fun.

Whilst tax will perhaps, and rightly, be the furthest thing from a business owner’s mind when organising the Christmas party, there are some helpful tax benefits that should not be forgotten. Whilst staff entertaining is generally a deductible expense for a business, when it comes to Christmas parties employers can treat their staff without triggering a taxable benefit as long as certain conditions are met.

To avoid that new year tax hangover, the staff Christmas party must meet the following conditions.

Firstly, the party must be open to all employees. This means that a party for department heads or directors only would not qualify for the deduction. Employers can, however, still benefit if they choose to hold separate events for different departments, provided all employees have the option of attending at least one party.

Secondly, the party must be an annual event, although it does not need to be held during the Christmas period. An event such as a summer party would also qualify. Helpfully, HMRC also allows that £150 limit to be shared across more than one event, meaning that a business could hold both a summer and Christmas party and take advantage of providing employees with a tax-free benefit.

A one-off party, perhaps to celebrate a historic milestone such as a 25th business anniversary, would not qualify.

Finally, employers should remember that there is a £150 per person limit. Importantly, this is considered a threshold, not an allowance, meaning that if the per-person cost of the party exceeds £150, the whole amount is then subject to tax and National Insurance.

This means employers need to take care in calculating the costs of the party, remembering that VAT, travel and any accommodation costs are included within that £150 limit.

The £150 limit extends to all attendees, meaning that the partners of employees can attend. Suppliers and customers, however, do not qualify.

Tax and gifts

Not every employer will want to hold a Christmas party and may wish to thank staff by way of a gift. Tax will not be incurred on the gift if it meets the ‘trivial benefit’ conditions listed below:

  • The cost of providing the benefit cannot exceed £50 per employee (including VAT), or the average cost per employee if provided to a group where it is not practical to work out exact cost;
  • The benefit is not cash or a cash voucher;
  • It is not a reward for work or performance; and
  • It is not in the terms of the employee’s contract (including under salary sacrifice).

If any of these conditions are not met, the benefit will be taxed in the normal way, via P11D, PSA or through the payroll. As with the Christmas party, if the cost exceeds £50, the whole amount will be taxable.

Do you need extra information?

Joanne specialises in corporate tax and advises businesses on their tax affairs. She has a vast amount of knowledge covering HMRC enquiries and compliance.

Contact Joanne at joanne.mclaughlin@hhllp.co.uk or on 01923 634 384

Watford