Last month we shared some top tax saving tips! Was there anything that surprised you? Did it prompt you to look a bit closer at your business finances?
Any potential savings in tax could be put towards a social event for you and your team. A Christmas party perhaps? If you are planning a Christmas party, or any staff social for that matter, here’s what you need to consider from a tax perspective.
Will our Christmas Party be exempt from tax?
The answer is it can be exempt from tax. As we’re sure you know, any tax exemption comes with a set of criteria defining what exactly will qualify. Here are the three golden rules which all must apply:
- It’s an annual social event. Depending on the time of year that could be the Christmas party or a summer BBQ (it could be both).
- The event must be open to all employees. If you have employees at several locations it must be all employees at one location.
- The total cost of the event, from start to finish, must not exceed £150 per head, including VAT. This means if you’re paying for food, drink, entertainment and taxis home for staff, it mustn’t exceed the limit £150 per person. We also need to add that ‘per person’ encompasses any external guests attending the event, not just the employees. If partners or spouses are invited to the Christmas party, they should be included in the total number of attendees.
What are the tax implications if we’re holding a Christmas and Summer event?
Providing that the total cost of both events is no more than £150 per person, then the tax exemption can still apply.
Once you’ve reached the £150 inclusive of VAT per person limit, you’ll then be liable to pay tax on the full costs of the event (even if the events individually cost less than £150 per person). Don’t forget that the employee will also get taxed through the Benefit in Kind regime.
Always remember, this is a tax exemption, not a tax allowance, and it applies to the whole tax year. As soon as you go over the limit of £150 per person (even by just a penny) the full cost becomes taxable. This is why it’s important to keep track of all costs involved with any staff social events.
Not keen on a Christmas party?
A Christmas party isn’t everyone’s cup of tea. The time of year might be extremely busy and with everyone working so hard, they might prefer to give it a miss.
Remember that the tax exemption is relevant (as per the criteria above) to annual social events. If the team would prefer to get together in February or October, host a party then! It could boost morale and even alleviate stress levels in December.
If the cost is a concern for your business year, then why not consider giving staff time off for Christmas shopping, or attending school plays if they have young children. There’s no tax implications for either of those and your team members will probably be just as happy to have the time back as they would for the party.
The best advice is to find out what your staff would enjoy the most. And if you’re concerned about how that impacts your tax obligations, get in touch.
