[UK] 5 Christmas party tax breaks to ease the burden this holiday season

The holiday season is nearly upon us, meaning it’s time for employers to organise Christmas celebrations. The pandemic forced the cancellation of many work Christmas parties so your workforce may want to make up for lost time and celebrate together. But with businesses feeling the strain of the cost of living crisis too, every penny needs to count. HR News has 5 top tips to help that happen.

Businesses can make smart savings by taking advantage of Christmas party tax breaks from HMRC. Tim Walford-Fitzgerald - Partner at accountancy firm HW Fisher - shared with HR News five ways to benefit from them. 

He said, “Many employers reward their staff with a Christmas party at the end of the year. The tax exemption applies to each tax year, so employers can actually put on both a summer party and a Christmas event, and the employees will enjoy some tax-free fun, as long as the total cost for both is less than £150 per head.

“Don’t forget even if you spend a penny over the limit, the full amount spent on that party becomes liable to income tax and National Insurance.”

Five ways to benefit include:

1. Inviting everyone

For an event to be tax-exempt, it needs to be open to all employees in one location. For example, if your company has offices in London and Birmingham, you could receive the exemption on a party for all London-based employees, as long as they are all invited. Larger employers can have separate parties for different departments but everyone at a location must be invited to something.

2. Controlling spending: keeping the budget below £150 per head

You will not have to report anything to HMRC if the function costs less than £150 for each person actually there. This is inclusive of all guests and does not just account for employees, so you must account for plus ones.

The cost per head is all-inclusive so it doesn’t only cover sherry and mince pies; transport, overnight accommodation and all food and drink costs should be included in this figure.

Mr Walford-Fitzgerald cautions employers to remember that, if you go over the £150 per head limit, you will be taxed on the whole cost, not just the excess amount. Be vigilant and keep track of every penny and try to keep within budget.

3. Remembering that Christmas isn’t the only wonderful time of the year…

It is possible to get an exemption across multiple events throughout the year, as long as they total less than £150 per head. For example, if your summer BBQ costs £70 per head and your Christmas party cost £80 per head, you would be able to claim a tax exemption for both. The party must be an annual event though; special celebrations such as a notable anniversary won’t qualify.

4. Getting carried away: what if you exceed the £150 per head cap?

No Chancellor would appreciate an Ebenezer Scrooge comparison but Mr Walford-Fitzgerald points out that the £150 limit has been the same since 2003, when the average pint of lager cost less than £2.30. If you get carried away with festivities and end up spending over the £150 per head cap, the cost attributed to each member of staff (and their plus ones) for the ‘guilty party’ will have to be included on their P11D forms. 

This would result in them having to pay tax on the expense as if it were an employee benefit. To avoid this, get in touch with HMRC to arrange a PAYE Settlement Agreement so the tax and national insurance can be covered by the business, rather than the employees.

5. Remembering that the rules apply to Father Christmas’s gifts too

It is possible to give employees gifts tax-free, as long as the cost doesn’t exceed £50 (including VAT) and the gift isn’t cash or a voucher. Provided that the £50 cap is observed, this could include another meal or drinks event and it still won’t count towards the £150 limit.

Mr Walford-Fitzgerald added, “By adhering strictly to HMRC’S parameters, it is possible to have a tax-free Christmas party and save your business money at the same time. If you are unclear, we would always recommend seeking professional advice or contacting HMRC to find out what is included”.

Source: HR News

(Quotes via original reporting)

The holiday season is nearly upon us, meaning it’s time for employers to organise Christmas celebrations. The pandemic forced the cancellation of many work Christmas parties so your workforce may want to make up for lost time and celebrate together. But with businesses feeling the strain of the cost of living crisis too, every penny needs to count. HR News has 5 top tips to help that happen.

Businesses can make smart savings by taking advantage of Christmas party tax breaks from HMRC. Tim Walford-Fitzgerald - Partner at accountancy firm HW Fisher - shared with HR News five ways to benefit from them. 

He said, “Many employers reward their staff with a Christmas party at the end of the year. The tax exemption applies to each tax year, so employers can actually put on both a summer party and a Christmas event, and the employees will enjoy some tax-free fun, as long as the total cost for both is less than £150 per head.

“Don’t forget even if you spend a penny over the limit, the full amount spent on that party becomes liable to income tax and National Insurance.”

Five ways to benefit include:

1. Inviting everyone

For an event to be tax-exempt, it needs to be open to all employees in one location. For example, if your company has offices in London and Birmingham, you could receive the exemption on a party for all London-based employees, as long as they are all invited. Larger employers can have separate parties for different departments but everyone at a location must be invited to something.

2. Controlling spending: keeping the budget below £150 per head

You will not have to report anything to HMRC if the function costs less than £150 for each person actually there. This is inclusive of all guests and does not just account for employees, so you must account for plus ones.

The cost per head is all-inclusive so it doesn’t only cover sherry and mince pies; transport, overnight accommodation and all food and drink costs should be included in this figure.

Mr Walford-Fitzgerald cautions employers to remember that, if you go over the £150 per head limit, you will be taxed on the whole cost, not just the excess amount. Be vigilant and keep track of every penny and try to keep within budget.

3. Remembering that Christmas isn’t the only wonderful time of the year…

It is possible to get an exemption across multiple events throughout the year, as long as they total less than £150 per head. For example, if your summer BBQ costs £70 per head and your Christmas party cost £80 per head, you would be able to claim a tax exemption for both. The party must be an annual event though; special celebrations such as a notable anniversary won’t qualify.

4. Getting carried away: what if you exceed the £150 per head cap?

No Chancellor would appreciate an Ebenezer Scrooge comparison but Mr Walford-Fitzgerald points out that the £150 limit has been the same since 2003, when the average pint of lager cost less than £2.30. If you get carried away with festivities and end up spending over the £150 per head cap, the cost attributed to each member of staff (and their plus ones) for the ‘guilty party’ will have to be included on their P11D forms. 

This would result in them having to pay tax on the expense as if it were an employee benefit. To avoid this, get in touch with HMRC to arrange a PAYE Settlement Agreement so the tax and national insurance can be covered by the business, rather than the employees.

5. Remembering that the rules apply to Father Christmas’s gifts too

It is possible to give employees gifts tax-free, as long as the cost doesn’t exceed £50 (including VAT) and the gift isn’t cash or a voucher. Provided that the £50 cap is observed, this could include another meal or drinks event and it still won’t count towards the £150 limit.

Mr Walford-Fitzgerald added, “By adhering strictly to HMRC’S parameters, it is possible to have a tax-free Christmas party and save your business money at the same time. If you are unclear, we would always recommend seeking professional advice or contacting HMRC to find out what is included”.

Source: HR News

(Quotes via original reporting)