Planning a Staff Christmas Party? Here’s What You Need to Know to Make It Tax Deductible
With Christmas party season approaching, it's a great time to review the rules for making your staff Christmas party a tax-deductible expense. Let’s go over what qualifies, how to keep it tax-deductible for your business and for your employees.
Can a Christmas Party for Staff Be Tax-Deductible for the Business?
Is a Christmas Party Taxable as a Staff Benefit?
No, the party can be tax-free for employees if it meets these criteria:
- The event is an annual party or social function (e.g., a Christmas party or summer BBQ).
- It is open to all staff.
- Costs do not exceed £150 per person (including VAT).
What Qualifies as an Annual Event?
An annual event occurs once a year, like a Christmas party, summer BBQ, or company day out. One-off events like a retirement party or team-building activity don’t qualify as annual events and are not tax-deductible in the same way.
Do All Staff Need to Attend?
For the event to be non-taxable, it must be open to all employees, even if they choose not to attend, it’s also fine to hold different events for different departments or locations. However, an exclusive directors-only event would not qualify.
How Is the £150 Per Head Calculated?
To qualify as non-taxable, the total event cost divided by the number of attendees must not exceed £150 per head. This calculation includes all event costs (e.g., accommodation, travel, food, drink, entertainment) and VAT.
Is the £150 an Allowance?
No. If costs exceed £150 per person, the entire amount becomes a taxable benefit. For instance, if the per-head cost is £160, the full amount is chargeable as a benefit, and if partners attend, the benefit would be £320, applied to the employee.
What If There Are Two Annual Events?
The £150 per person limit applies to the entire year, not per event. If both events meet the qualifying rules but together exceed £150 per head, the business can choose which event to exempt and which to report as a taxable benefit. For example, if the Christmas party costs £100 per head and the summer BBQ costs £60, the business might exempt one event and report the other as a taxable benefit. If they both cost £75, they would both qualify as exempt events.
Can Staff Contribute to Reduce the Per-Head Cost?
Unfortunately, no. Even if employees contribute, the per-head cost remains taxable if it exceeds £150.
Are There Reporting Obligations?
If the costs go over £150 per head, you must report the benefit for each employee, typically via a P11d form, which incurs additional taxes for both the employee and employer.
Do Exempt Events Need to Be Reported?
No, exempt events do not need to be reported, but it’s essential to keep documentation that proves the exemption, in case it’s later required.
Are Christmas Gifts to Staff Taxable?
Gifts under £50 qualify as trivial benefits and are tax-free. For further details, including rules on gifts over £50, refer to our blog on “Tax Rules for Staff Christmas Gifts.”
Where Can I Find More Information?
For more information, visit the following HMRC resources:
Planning ahead will ensure your Christmas party is both enjoyable and tax-efficient for your team.
Happy holidays!
DISCLAIMER: The information in this article is for general guidance and is not a substitute for professional advice. Please contact us for bespoke advice and guidance.
