Keep The Party Going with Allowable Deductions
When it comes to rewarding staff with a Christmas Party, you want everyone to have a great time. And by making effective use of allowable deductions, your budget could go further. Staff entertaining is an allowable deduction for tax purposes under certain conditions.
To be non-taxable, the party must:
- Be open to all employees
- Be an annual event, such as a Christmas party or summer barbecue.
- Cost £150 or less per person
This £150 total is for the whole year, so you could not host two annual events costing £150 per head. However, you can host two events, as long as the combined cost of the events is no more than £150 per head.
If your business has more than one location, you can put on separate parties for different departments, as long as all employees can attend one of them.
The £150 is an exemption, not an allowance.
This means if your party costs £151 per head, the whole cost of the party will be taxable, not just the £1 per person above the £150 threshold.
While the exemption depends on the Christmas party being primarily for employees, you can extend the invitation for your staff to bring along a partner or a guest; however, the cost of these attendees must be included in the £150 per head limit to avoid being taxable on the staff member.
If the event satisfies the exemption criteria outlined above, then there is no tax or NIC due for the staff member. If the event does not meet the exemption rules, then it will be a taxable benefit reportable on form P11D, which means the employee pays Income Tax on the value while the employer pays Class 1A NIC.  Alternatively, the employer can apply to pay the tax and NIC on the employee’s behalf via a PAYE settlement agreement.
If you need assistance on this issue, please contact the Tax Team at tax@thomsoncooper.com.