Enjoy the office Christmas party, but remember to claim tax exemption!

Many companies will be celebrating another year’s hard work with a Christmas party this month, but a number of firms are still failing to remember that a generous tax exemption applies to annual parties.

‘Annual’ parties – such as a Christmas event – can qualify, but the amount that can be claimed is capped at £150 per staff member.

If the cost of a qualifying party goes above the £150 per head threshold, however, then all the costs incurred are taxable as a benefit-in-kind on employees. It is important to note that this financial limit must include the whole event, from the start to the finish, including those early morning taxi transfers, overnight accommodation, and VAT.

Importantly, the £150 per head limit applies to everyone attending the function, not just employees, which is something to bear in mind if they bring guests.

VAT rules also need to be considered. If employees’ guests are invited to the event the input tax has to be apportioned, because the VAT applicable to non-staff is not recoverable. However, if non-staff attendees pay a reasonable contribution to the event, all the VAT can be reclaimed.

If entertainment is only being provided for directors, partners or sole proprietors, HMRC does not accept that the input tax has been incurred for business purposes. However, if directors attend parties along with other members of staff, then the VAT on the cost of attendance is not blocked from recovery.

Cash Christmas presents to employees remain to be taxable along with other earnings. The same treatment also extends to vouchers that can be spent in either one or a number of different shops of the employee’s choice. (The employee has to pay tax on the full value of the voucher.)

So, be sure to have a very Merry Christmas, but remember to maximise your financial benefits!

Loading Quotes...

Latest News

Be prepared for changes to VAT penalties and VAT interest charges

Changes to charges and penalties applied to late submission of VAT returns will …
Read more…

Penalties for misuse of Coronavirus Job Retention Scheme

New legislation allows HM Revenue & Customs (HMRC) to recover Coronavirus …
Read more…

Don’t pay more tax
than you need to

Register for our newswire

Our regular Newswire mailings are designed to keep you up to date with the latest industry news and events.

Register here

Client Login
Complete our Client
Satisfaction Survey

Spring Statement 2022

Exactly two years since the first lockdown was announced, the eyes of the public were firmly...

Read full our summary