Christmas is an expensive time of year, but staff parties can be tax free, because HM Revenue and Customs’ (HMRC) festive gift is an annual tax exemption of up to £150 per person. While most employers include food, drink and entertainment when costing such events, many forget they should also include costs such as accommodation and transport to and from the event if they also fund these for staff.
A record of who actually attended, not those expected to turn up, should be kept by the employer, because HMRC calculates the cost based on the number of attendees. Guests can also include non-employees, such as spouses or partners, which will potentially reduce the cost per head.
There will be no tax or national insurance (NI) charge for one annual staff party if the total cost of the event per attendee (inclusive of VAT) is less than £150 per head. However, once this limit is exceeded, the full amount is liable to income tax and national insurance contributions (NICs) for both staff and employer alike. It will be taxed as a benefit-in-kind, which could bring a nasty chill come the new year.
If, like Scrooge, employers plan to cancel the Christmas party this year, there’s still time for a change of heart, because a turkey, a bottle of wine or a box of chocolates are all treated as ‘trivial benefits’ that are tax and NIC free.
Susan Ball is director of employment tax and advisory services at Crowe Clark Whitehill