Are you a limited company and want to save money on your company’s Christmas bash? Read this email to find out how!
Whilst there isn’t an actual allowance for a Christmas party, HMRC does offer limited tax relief for the cost of an annual event for your company. Certain conditions must be met to obtain the tax relief and only applies to annual events, which is available to all staff and is set at £150 per person. However, if the cost exceeds £150, even by a penny, all costs are taxable. The expense limit, in the eyes of HMRC, also includes taxis, accommodation, food and drinks and any other expenses.
Your company is allowed to hold more than one annual event a year, but the claim for all the events must stay at £150 per person. You can decide which event you will make the claim on; Christmas party, summer party, etc.
HMRC states that you should divide the total cost of each function by the total number of people, including non-employees, to calculate the cost per head. The £150 per head threshold applies to all those attending including non-employees, this would be relevant if employees are allowed to bring their partners, for example.
Cash bonuses & vouchers
Christmas presents paid in cash to staff will be taxable as earnings in the normal way. The same tax treatment also applies to vouchers exchangeable for cash, with the employee taxed on the full value of the voucher.
Vouchers exchangeable for goods and services only (non-cash vouchers) are also taxable and must be reported on the employee’s form P11D. Class 1 national insurance will normally need to be deducted through the payroll.
Make sure you tell your accountant so they can report the correct figures to HMRC.
The employer may wish to give employees a seasonal present, such as a turkey, a bottle of wine or a box of chocolates. Typically, the cost of these gifts are less than £50 a head and the gift will usually not be taxable.
Should the cost of the gift exceed this value, it will be taxable and will need to be reported to HMRC on either a form P11D or through a PSA.
Employees may receive gifts from third parties as a result of their employment. As long as the gift does not exceed £250 in cost, it should not be taxable for the employee.
For a detailed explanation of the annual event expense rules, click here (HMRC).
The rules surrounding business expenses can be quite complex, so do not hesitate to contact us if you have any queries.