It may only be October, but many of us will have already booked our work Christmas parties and functions to celebrate.
But what are the costs to your business of the Christmas party and what is tax allowable for your employees? It’s not as straight forward as you might hope.
The total cost of the Christmas event, whatever format it takes, must not be more than £150 per head, including any transportation or accommodation costs associated with the event. If it goes above that limit, then it is no longer a tax-free benefit, and your employees will suffer income tax on the benefit. This is an exemption, not an allowance, so if the event comes to £151 per head, then the whole amount is taxable, not just the £1 over it.
Also, be aware that the £150 limit is an annual exemption, so if there are other events held during the year then the cost of these will reduce the balance left to claim for Christmas. For example, if the company also holds a summer barbecue that cost £50 per head, then there is only £100 per head left for the Christmas party before it becomes taxable.
Any event should have the purpose of entertaining employees and be open to all staff, not just the Directors – unless of course all the staff are directors. If the event is only open to Directors, assuming there are other staff, then the full cost of the event is chargeable to the Directors as a taxable benefit.
You can claim back any input VAT on the event and use it as a deduction for corporation tax purposes, although if clients have also been invited to the event you will not be able to claim deductions for the elements that relate to them.
If you have any further questions on this then check with your accountant as getting it wrong could be costly.