Christmas Parties and Tax
Christmas parties were largely off the table last year and, whilst many tried creative/remote options, a lot of businesses are understandably excited at the prospect of a proper get together this year.
HMRC defines ‘entertaining’ as providing free or subsidised hospitality. It can include food and drink, hotels, flights, visits to sporting events, theatre tickets and similar.
Christmas parties are a great way to improve team morale and have no tax implications for you or your staff if they fulfil these criteria:
The total cost across all functions is £150 per head or less
The event is annual, such as a Christmas party or summer barbecue
The event is open to all employees
To prevent a taxable benefit, which would give employees a tax charge the employer an unwelcome Class 1A National Insurance liability, the total cost per attendee neds to be less than £150 (including VAT) for the total cost of everything, including things like transport. The limit of £150 includes the cost of all annual events in the year, not each one.
As a word of warning, the £150 is not an allowance. If the cost is £151 then the whole amount becomes a taxable benefit on which Income Tax and Employer National Insurance is due.
Where an employer provides entertainment for the benefit of employees (for example to improve morale) this is wholly for business purposes, meaning VAT incurred on employee entertainment is generally recoverable.