Taxing Times at Christmas

Christmas is fast approaching, shopping centres already have their trees in place, the Christmas ads are starting to appear on the TV and in workplaces up and down the country thoughts are turning to the Christmas party.

Unfortunately, the office Christmas party may not all be good news and we’re not just talking about your hangover the next day. If the party isn’t planned and costed properly – and if you’re not aware of the rules – then it can mean an unwelcome visit from the taxman, with implications for both the employer and the employees.

So here are seven points that will hopefully guide you through the tax implications of the festive season – and make sure the taxman isn’t knocking on your door in January.

1. First of all the good news. Providing certain conditions are met the Christmas party is an allowable expense – but note that the relief only applies to ‘annual’ parties. If you entertain your staff more frequently, then the cost of the party won’t be allowable

2. The tax relief is capped at £150 per head. If you go over that amount then the whole amount becomes taxable as a benefit in kind. So if the cost of the party is £160 per head, tax is payable on that amount – not on the amount in excess of the £150 allowance.

3. HMRC also stipulates that the cost of the party is the whole cost – so it’s not just food and drink that you’ll need to take into account. Printing tickets, decoration and – presumably – cleaning up afterwards would all count towards the total cost, as do taxis home and any overnight accommodation. The total cost is then simply divided by the number attending to find the cost per head.

4. Partners count – which is both good news and (potentially) bad news. The cost per head is simply the total cost of the party divided by the total number attending (including partners). But if the £150 limit is breached then the employee will have a tax liability for both themselves and their partner.

5. To be an allowable expense, the office Christmas party must be open to all staff – you cannot, for example, claim for an event restricted to directors only.

What about gifts?

6. Many employers give members of their staff a Christmas gift. Again, it’s important to know the rules as there could be tax implications. The guidance from HMRC is that a seasonal gift isn’t taxable, as long as the cost is ‘reasonable.’ HMRC quotes a turkey, an ‘ordinary’ bottle of wine or a box of chocolates as a ‘reasonable’ gift, but don’t put a specific monetary value on it. However, there seems to be a general agreement that HMRC do not look to tax gifts below £50 – so if an employer gives a member of staff, say, a case of wine as opposed to a bottle, there may well be a tax implication.

7. Some members of staff may also receive gifts from third parties at Christmas – for example, from suppliers. As long as the value of such a gift doesn’t exceed £250 then it won’t be taxable for the employee.

Finally, one piece of good news for any employees who stagger back to work in January with ‘flu. HMRC also considers a ‘flu jab’ paid for by your employer to be a ‘trivial’ gift. Who said the taxman doesn’t have a sense of humour?

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