Despite emerging from lockdown into the freedom of Tier 2, the block on meeting people from other households has put a stop to the standard Christmas Party.
So, instead of mixing households, we’ll be mixing cocktails at an online Cocktail Making Masterclass. Run by our clients, The Pickled Olive in Woolton, the JDA team will be enjoying some Christmas cheer on Zoom.
Which, of course, leads to the question – “Can I claim tax relief on it?”
So, we asked Amy to take a look and record this video. I couldn’t persuade her to wear a Santa hat, but watch her video to find out what tax relief you can get, or read about it below.
Despite the uncertain times that we find ourselves living in, you can still celebrate Christmas in tax-free style – even it does have to be a ‘virtual’ office Christmas party.
Although there is no specific allowance for a Christmas party, or any other employer-provided social function, HMRC do allow limited tax relief against the cost of holding an ‘annual event’ for employees, providing certain conditions are met.
A staff event will qualify as a tax-free benefit if the following conditions are satisfied:
- the total cost must not exceed £150 per head, per year
- the event must be primarily for entertaining staff
- the event must be open to employee, or to those at a particular location, if the employer has numerous branches or departments
The exemption should therefore apply if, say, an employer meets the cost of meals delivered to each employee’s home and the staff ‘party’ is held virtually via video conferencing or similar.
It could also include the cost of entertainment, for example a musician or an online game.
How much can I spend?
The ‘cost per head’ of an event is the total cost (including VAT) of providing:
a) the event, and
b) any transport or accommodation provided for persons attending it (whether or not they are the employer’s employees), divided by the number of those persons.
Provided the £150 limit is not exceeded, any number of parties or events may be held during the tax year.
For example, there could be three parties held at various times, each costing £50 per head.
The £150 is a limit, not an allowance – if the limit is exceeded by just £1, the whole amount must be reported to HMRC.
If there are two parties, for example, where the combined cost of each exceeds £150, the £150 limit is offset against the most expensive one. The other one is a fully taxable benefit.
Is it tax-deductible?
Events for customers are not tax-deductible for the business but staff events generally are.
The expenses will be shown separately in the business accounts – usually as ‘staff welfare’ costs or similar.
There is no monetary limit on the amount that an employer can spend on an annual function. If a staff party costs more than £150 per head, the cost will still be an allowable deduction for the business, but the employees will have a liability to pay tax and National Insurance Contributions arising on the benefit-in-kind.
The employer may agree to settle any tax charge arising on behalf of the employees. This may be done using a HMRC PAYE Settlement Agreement, which means that the benefits do not need to be taxed under PAYE, or included on the employees’ P11D. The employer’s tax liability under the PSA must be paid to HMRC by 19 October following the end of the tax year to which the payment relates.
The full cost of staff parties and/or events will be disallowed for tax if it is found that the entertainment of staff is in fact incidental to that of entertaining customers.
VAT-registered businesses can claim back input VAT on the costs, but this may be restricted where this includes entertaining customers.
Are there any different rules this year?
The only difference is that the event may be virtual.
To qualify as tax-free benefit, you might need to keep a record of attendance as this isn’t as clear as it would be at a physical event. Simply letting employees buy a takeout meal at separate times would not qualify.
Is there an alternative?
If it isn’t possible to arrange an event, you might choose to use the trivial benefits rule. This allows an employer to provide a gift up to the value of £50 including VAT with no tax benefit.
The gift can’t be cash or vouchers exchangeable for cash but could, for example, be a hamper or wine.
If you’re feeling really generous, you could provide a party and a gift, but remember the limits are annual.
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