So the weather has turned cool, and our thoughts now move from summer holidays to Christmas and in particular the works Xmas Party.
The tax office is quite generous in the way it views staff entertaining. Not only is the cost of providing a party free of both tax and national insurance, there is also no need to report the benefit on a P11d. However, there are a number of conditions that must be met in order for the exemptions to apply. This beneficial tax treatment is not restricted to a Christmas Party, but applies to all functions provided that the conditions below are met.
Firstly, the function must be an annual event and not a “one-off”. In order to avoid confusion care should always be taken in describing an event. In one case the tax office attempted to tax the cost of the annual Christmas party provided to employees because the employer decided to combine it with a 10 year anniversary party and invited major customers and suppliers. This confusion could have been avoided by careful wording of the invitations.
Secondly, the cost must not exceed £150 in any tax year. This limit is not per function but per employee. If the cost exceeds the limit then the whole amount becomes taxable and not just the excess above the limit. For instance, a Christmas Party costing £160 exceeds the limit, and the whole cost of £160, not just the surplus of £10, is taxable. Similarly, if there is an annual summer function costing £60, followed by a Christmas Party costing £100, then the summer function is within the exemption limit, but the Christmas Party takes the total annual cost above the limit of £150 and so the whole cost of £100 is taxable.
Thirdly, the function must be open to all employees. If you have more than one business location then this condition would be met if all locations had their own function which was open to all employees at that location. However, it would not be met if the office staff at a location went to a different function than the warehouse or factory staff. For example, if the summer function in the example above and costing £60 was open only to office staff then this would not meet the conditions and would, therefore, be taxable. The Christmas Party costing £100 would then be within the exemption provided that it was open to all employees.
One thing to note is that there is no requirement for a minimum number of employees before the exemption applies. Therefore, the cost of a function provided by a company to its sole director/employee, or to a husband and wife if both are employed by the company, would fall within the exemption provided the other conditions were met.
WatkinsonBlack are pleased to advise on these and other matters. They have considerable experience in all areas of taxation and business services, including providing a very cost-effective payroll bureau service. If you want to arrange a no-obligation initial meeting on any taxation or accounting matter then please contact us. Please note that these ideas are intended to inform rather than advise and you should always obtain professional advice before taking any action.