As the festive season approaches, ICAEW reminds employers that staff Christmas parties can be tax-free. Every year HMRC’s seasonal gift allows businesses to spend an annual tax-free amount of up to £150 per member of staff.
Done well, a Christmas party can serve as a great way for businesses to show appreciation for their employees' contributions and hard work, and encourages their commitment and ongoing efforts.
The rules apply to any annual party or similar function, which must be open to staff generally or to workers at a particular location. The tax-free limit applies for a tax year, so if the employer puts on a summer party and a Christmas dinner together costing less than £150 a head, both will be tax-free for employees. This generosity from the taxman is available to businesses of all sizes.
The range of items that can be claimed under the £150 limit goes beyond food and drink, it could also include accommodation and transport home if the employer pays for these. Furthermore, employees can even bring along their spouse or partner as long as the cost per head stays under the limit. On top of this, the employer will also get tax relief on the total costs.
However businesses should be aware that one penny over this limit and the full amount spent will become liable to income tax and National Insurance for both staff and employer alike, the amount being taxed as a benefit.
However, those bosses who are truly entering the festive spirit should remember that gifts to employees are taxable. Cash presents, such as Christmas bonuses or vouchers redeemable for cash, also have to have tax and National Insurance contributions paid through the PAYE system.
That said, those bosses who prefer to give staff a present, such as a high street gift voucher, can pick up the tax bill on behalf of their employees by setting up a PAYE Settlement Agreement with their tax office.
So enjoy the festive season and don’t let it be taxing!