A gift from HMRC, you say, now we all know that HMRC are not known for giving gifts, but then, it is the season to be jolly.
So what’s the gift?
Well, the party season is now upon us and you have probably already booked your Christmas party, but unlike the rules regarding normal entertaining there are, providing you meet the criteria, some tax breaks.
So what’s the criteria?
An annual event qualifies as a tax-free benefit for your employees and a tax deductible expense for your business providing you meet the following;
- The total cost, including any costs for transport or accommodation, must not exceed £150 including VAT, per head, per tax year.
- All of your team must be invited to the annual event and it must be primarily for entertaining your team.
- The event is an annual event, like a Christmas party or summer BBQ, any one off or special events would not be covered.
Sounds easy right?
Not exactly, this gift could potentially turn into a New Year hang over…
The £150 is a threshold not an allowance – which means that if your Christmas party costs £200 per head then your team member will be taxed on the full £200 as a benefit not the difference of £50.
The tax free threshold is per tax year not per event, so if you hold more than one annual event, let’s say a summer BBQ and a Christmas Party then it’s the joint cost of both events must not exceed £150 including VAT.
One last thing, it is the numbers that actually attend that is important as this is the number that the cost per head will be calculated on. So for example if you booked a party for 20 guests with the cost per head being £100 per head and on the night only 10 guests turned up then the cost per head will rise to £200 and the full £200 will become a taxable benefit.
As I said above, this is the season to be jolly and while I don’t want to ruin the mood with too much wariness, meeting the criteria is important in preventing a New Year hangover.
However, in the spirit of Christmas, I will leave you with one gift about this special exemption;
Notice the rule said “per head” and not “per team member”, so the good news is, unusual for tax rules, this is exactly what it means. Imagine you have 10 team members and they all attend the Christmas party and each of them bring a partner, your total spend could now be £3,000 without there being a tax issue.
Happy Christmas and hopefully, now the only thing you should be worrying about is recovering from the Christmas party!