Having An Office Christmas Party? Here are the tax rules that apply:

At this time of year, many of you will be holding your Christmas party. We have recently received a few enquiries about what is a taxable benefit and what is not in relation to staff events. This short post by our tax experts helps to explain the main rules:

Staff Christmas Party

Fundamentally, if the cost of your Christmas event is less than £150 per head, there is no taxable benefit.

'Cost' is not simply limited to food and drink but includes all of the costs associated with the event, such as travel and overnight accommodation. It should be noted that 'Cost' does not also mean simply cost to the employer. That is, if you spend £200 per head on a staff Christmas party and your suppliers have agreed to provide £60 worth of drinks contributions, then you are still over the tax-free threshold.

You must also be aware that the £150 figure relates to a 'threshold' and not an allowance. That is, if you spend £200 per head on your Christmas party, the taxable benefit generated is £200 (not the £50 over the threshold).

How is cost per head calculated? Simply divide the cost of the event by the number of people attending (employees, customers, spouses, suppliers). You should note that the £150 threshold is per head and not per employee so if 100 employees attend with their spouses or partners, and the event costs £20,000, then the threshold has not been exceeded (£20,000/200 = £100).

If there is a charge to tax it extends not only to the employee but also to a member of the employee's family or household. That is, if an event costs £200 per head and the employee attends with a member of their household or family who is not an employee of his/her firm, then the employee will pay tax on £400. However, if an employee attends with someone who is not a member of his/her family, or household, then the employee is only taxable on his/her £200.

In order to qualify for exemption, your event must be open to all of your employees (full and part-time) and not simply Directors. However, it is possible to offer different parties to employees at different locations or departments.

If you decide to organise more than one function in the year (i.e. a staff Christmas party and a staff summer barbecue), then both can qualify for tax relief if the combined cost is less than £150. However, if the cost of both functions combined exceeds £150, then you, the employer, would have to decide which staff party should be exempt. This last point is important, as it is the employer who decides which function should be exempt and not the employee. So if you decide that the staff Christmas party is exempt and an employee only decides to come to your summer barbecue instead, they would have to pay taxable benefit on the summer barbecue.

What if your employees are members of the family? The simple answer is that the same tax rules apply. This means that if you and your wife/husband are the only employees of your company, you can use company funds to pay for your Christmas dinner without creating a taxable benefit. It should be noted that HMRC may try and deny the tax relief for your company if they deem the expenditure and to be "wholly and exclusively for the purposes of the trade".

Finally, if you are lucky enough to be invited to many Christmas parties, you can rest assured that you only pay a benefit-in-kind charge if the event is provided (or procured) by the employer. This leaves you to attend parties thrown by your clients, contacts, trade organisations, membership bodies and suppliers without risk of any tax charge being placed on you.

If you have any further questions about this or any tax matter, please contact our specialist tax team who will be happy to help.

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