Staff Parties & Tax – What you need to Know
We are coming to the end of the year and it’s time to dust of the sparkly outfits and Christmas jumpers as we head into party season.
As an employer organising a staff party, there are a few things you need to keep in mind to take advantage of tax exemptions for your employee entertaining:
Tax exemption for employee entertaining is available if all the following apply:
🎄it’s an annual party or social function, such as a Christmas party or summer barbecue
🎄it’s open to all employees
🎄the cost does not exceed £150 per head (inclusive of VAT)
HMRC have confirmed that Virtual Christmas Parties are eligible for the annual function exemption.
Note – client entertainment is not generally an allowable expense. If your party has clients and employees attending, only claim for the amount spent on your employees.
* Do you hold multiple events a year?
If you hold multiple annual events e.g., barbecue and Christmas party, these events will remain exempt as long at the combined cost is no more than £150 per head.
If you have used up the £150 exemption on an event and have a further event in the year, you will have to report and pay tax on the full costs of the additional events, even if the cost is less than £150 per head.
For tax exemption, it is important to take care when working out the total cost per head, that it does stay under the £150 per head tax exemption. If the cost per head exceeds this exemption by even by a penny, then the full cost becomes taxable.
The cost per head is considered to be the total cost of the event from start to finish and include food & drink, transport and accommodation. The limit of £150 per head applies to the total number of attendees, so, if employees are allowed to bring guests, the total cost should be divided by the total number of employees and guests attending.
Gifts to Employees
The limit set by HMRC for an employee gift is £50 and cannot be cash or a cash voucher.
So, if you are thinking about giving your employees a Christmas gift such as a bottle of wine or box of chocolates, HMRC will not seek to tax these small gifts.
However, Christmas gifts paid in cash will be classed as taxable earnings.
Gifts to customers
Generally, client entertaining is not allowable for tax purposes, further, gifts for clients and prospective clients are also not allowed.
The exception is where the gift is small and advertises your company’s services. This excludes food and drink and vouchers/cash. The advert, such as the company logo must be on the item, not just the wrapping. Examples of gifts allowed includes gifts includes pens, diaries, mouse mats, clothing, and umbrellas.
The information given above contains general guidance, if you are unsure of any aspect of tax exemption for staff parties and gifts, please get in touch.
Sue Haynes is the founder of Cactus Bookkeeping and helps business owners
with all aspects of Bookkeeping to save them time so they can concentrate on running their
business. Sue is licensed, regulated and supported by the Institute of Certified Bookkeepers (ICB)