The Ghost of Christmas Present - Let’s Party Mr Scrooge?

The Ghost of Christmas Present (a.k.a. Robert Woolley!) of HPH, Chartered Accountants provides a timely reminder of the tax implications of workplace parties.

As Christmas approaches, many people are out enjoying themselves at the workplace Christmas Party, but not the Tax Inspector! Okay so the Tax Inspector isn't completely Ebenezer Scrooge – at least there's no taxable benefit on parties costing £150 or less per head, or is there? Few employers fully understand this rule; getting it wrong can result in the employer paying a lot in tax or landing the employee with a tax bill. The latter would tend to negate the very purpose of the party!

The good news is that, unlike entertaining customers, the costs of entertaining employees are generally an allowable deduction against the profits of the business for tax purposes.

But what about the tax consequences for the employees themselves? Will they have to pay tax on the benefit?

Generally, as long as the total cost of all employee annual functions in a tax year is less than £150 per head (VAT inclusive) there will be no tax implications for the employees themselves. In considering this limit, it is necessary to include all the costs of an event, comprising any food, drinks, entertainment, transport and accommodation that the employer provide.

If the total cost is above the £150 per head limit, then the full cost of the benefit will be taxable on the employee. In this case, it should be reported on each employee's P11D or, alternatively, the business may choose to enter into a PAYE Settlement Agreement with HMRC to cover the tax. 

It is also worth noting that an exemption in relation to employee entertaining was introduced on 6 April 2016. From that date, a benefit provided by an employer to an employee will be exempt from tax and need not be reported to HMRC on a P11D if all of the following conditions are satisfied:

  • The cost of providing the benefit does not exceed £50;
  • The benefit is not cash or cash vouchers;
  • The employee is not entitled to the benefit as part of any contractual obligation; and
  • Where the employer is a close company, and the benefit is provided to an individual who is a director or other office holder of the company (or a member of their family), the exemption is capped at a total of £300 in the tax year.

Please get in touch with your usual HPH contact if you would like to discuss any of the above in further detail. 

The information contained within the above blog article is for general information purposes and may be time critical; it does not constitute professional advice. We accept no responsibility for any loss which may arise from reliance on the information contained in the blog article. Always seek professional advice before acting.

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