Christmas party tax break

Festive decorations and mince pies are appearing in shops around the UK, perfume adverts have popped up on every other bus stop, and the Coca-Cola truck is being buffed and polished as we speak. Yes, like or loathe it, Christmas is around the corner.

With it comes the chance to treat your hard-working employees to a festive party - but what are your tax obligations, and the tax breaks?

Fortunately, HMRC has some very clear rules and regulations for putting on an annual party. Here's a breakdown of what you need to know.

Annual events

To qualify for breaks, your party needs to be held annually.

Although this is usually in the form of a Christmas party, it could also apply to a summer barbecue, a Halloween ball, or a festival of February - whatever fits your business's calendar and culture.

One-off parties do not qualify under the Revenue's criteria, but it is possible for you to lay on more than one party in the financial year and be exempt from reporting the costs to HMRC.

Open to all employees

Every single member of staff you employ must be invited to your party in order to qualify for your tax exemption.

Even if only one employee is excluded, you will not be able to claim, neither would you be able to claim the costs involved with putting on a party for a specific team. 

You can hold multiple Christmas parties for different teams on different sites, as long as everyone has the opportunity to attend at least one event.

£150 exemption

You're allowed to spend up to £150 per person before you are obliged to report the costs to HMRC. This is calculated by dividing the total cost of the party by the number of people attending.

The £150 is an employee's total exemption for all of your annual parties, not just for Christmas.

For example, if you put on a summer barbecue in July and a Christmas party in December, that £150 per employee has to be spread across both events.

So, you could spend the equivalent of £70 on each member of staff who attends your summer barbecue and you'd have £80 per employee for your Christmas party.

Spending even a penny over the £150 individual exemption will result in the entire party being liable for tax, and a large additional bill, as well as a lot of extra paperwork.

If you exceed £150 per employee, you'll have to report the cost to HMRC and pay national insurance contributions (NICs) on it.

You will need to report the cost on each employee's P11D form and pay class 1A NICs on the event's full cost.

You decide how to spend it

How you spend the £150 per employee is entirely up to you.

For instance, you could cover the costs of providing a Christmas dinner and a free bar, or you could spend it on accommodation, travel or entertainment.

We can help you understand your tax obligations.