News analysis: Sober thoughts on parties

Christmas parties can boost staff morale and motivation, but employers must be aware of the tax consequences of their spend, says Nicola Sullivan

It’s Christmas party time again, and although many employers will not want to dampen the festive spirit by being overly frugal, they will probably want to keep the cost of their annual celebration as low as possible.

A good starting point would be for employers to ensure they do not have to pay tax on what they spend on festivities. HM Revenue and Customs stipulates that organisations that do not spend more than £150 per employee will be exempt from tax. But for the exemption to apply, all employees have to be invited to the party, which is typically held at one location. Employers with large workforces and numerous sites can hold two Christmas parties without occurring tax as long as they meet the same requirements.

Nigel Cooper, managing director of P&MM Events and Communications, said: “It’s an annual sum, not a one-off. If an employer does other events throughout the year, these have to be taken into consideration. An employer can’t put on four events for £150 per head; the cost has to be split.”

Lesley Fidler, associate director at Baker Tilly, said all costs associated with an event must be taken into account. “Employers need to ensure they have gathered up all the costs that relate to the party. This includes any travel costs they pay and anything somebody might put on expenses afterwards.

“Very often the most senior person at the table orders more wine and everybody says ‘oh, how generous’ and in fact it turns up on their next month’s expenses. All of those extra costs need to be accounted for, including the hiring of the disco and the table gifts the secretaries went out to buy. Sometimes it is very easy to say ‘the hotel charged us X’ and assume that is the price.”

Get the best value

According to Cooper, there are a number of ways employers can get the most from their Christmas party spend. A decent party could be done for £75 a head, including hiring a room in a hotel, a sit-down meal and some drinks.
“It’s all about how creative you want to be, rather than the basics,” he said. “The basics are still actually available for a very good price.”

Employers could also book their staff into a shared event with other businesses. Corporate parties could, for example, attend one of Jamie Oliver’s Fabulous Feasts, which will be taking place at Battersea Power Station.

“[At a shared event] there might be 500 seats being sold off,” said Cooper. “Entertainment costs are spread across a larger audience, so it is less per head.”

Employers could also use venue finders to find a location that suits their budget and requirements. Nightclubs, which are often looking for business during the week, might be a good option.

Some inexpensive added extras could ensure a Christmas party stands out from the crowd. These include the use of mood lighting, local magicians, balloons and free disposable cameras. Low-cost gifts could also be given to staff, such as jewellery, perfume or electrical goods. Paul Calnan, managing director at Cottrills, said: “An employer might say ‘I have £50 to spend per head. I could give them a hamper, but can you give me something more inspirational?’”

Employers should not overlook the fact that even a modest Christmas party can boost staff motivation and morale. Jennifer Mead, HR manager at law firm D Young & Co, said: “It’s such a motivating thing to provide a Christmas party. This year and last year we had our highest uptake of attendees. It’s such a good sign; I am looking forward to it.”

Read more about motivating staff through parties