Xmas staff party | the tax rules

If you are putting on a staff Xmas party, you’ll want to know the tax rules!

This short article takes you through the main rules but remember: it doesn’t have to be a Christmas party. Salons are very busy in December, so you could have a January party instead to say thanks to your staff.

What’s HMRC‘s stance on all this?

This is what they say:

To be allowable, the party must be all the following:

£150 or less per head
It must be annual
It must be open to all of your employees

Remain below the £150 limit and there is no additional tax or national insurance to pay; and the whole expense is allowable against your corporation tax for the year.

So let’s take a look at each of these requirements:

How to calculate the £150 per head:

The £150 limit includes: The cost of the function (including VAT), the cost of transport (e.g. taxi) and overnight accommodation, if either of these are provided.

Divide this total cost by the number of people (including non-employees) who attend to give you the cost per head.

What does ‘annual‘ mean?

HMRC say that “annual” is something that happens once a year on a recurring basis (such as a Christmas party or summer barbeque). So it follows from this that a one-off event, for example a party to celebrate your salon being open 2 years , cannot be an annual party or function. So in this case, the expense would not be allowed.

Watch that limit and other points

The £150 is a limit and not an allowance: if the cost is £155, the whole £155 benefit is taxable – not the additional £5.
The event must be primarily for entertaining staff (but you can invite non staff).
The event must be open to all staff.
The cost of the whole event is an allowable expense for your business.

In summary

Holding a Christmas party can be a great way to show appreciation for your team and if you keep within the HMRC criteria, there’s a lot less tax to pay.

As an alternative to the staff party, there is also something called ‘Trivial Benefits’ if you want to spend £50 or less on each employee. See here: Trivial Benefits | a tax efficient way to thank your staff – and you!

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