As the Christmas season is upon us, I thought it might be useful to remind everyone of some of the tax consequences to all this partying.
A staff Christmas party (or annual function) can qualify for tax relief as long as certain conditions are satisfied. The main ones are:
All staff from that particular premises are invited
Other family members can be invited - but the primary reason for the function must be to entertain the staff.
Total cost per head doesn't exceed £150 pa (including VAT)
This is a limit not an allowance (actual costs must be used and receipts kept).
If the total (venue, food, transport,accommodation etc) per person (staff plus non staff) exceeds £150 per head then the whole amount per head is taxable as a benefit in kind on the employee.
There can be more than one function a year (summer and Christmas party) but the total combined must not exceed this limit.
If customers or contractors attend the party - the tax relief must be apportioned accordingly - as this is considered to be entertaining costs, not staff welfare.
VAT is also restricted for non-staff attendees, and where the only staff are all directors.
Sole traders (partners in a partnership) are not considered to be employees - therefore there are no specific tax deductions for Christmas parties. The cost would be viewed as personal entertaining and treated as drawings.
If you usually provide your employees with a gift at Christmas - make sure it falls within the scope of trivial benefits to ensure it is tax deductible for the company, and there are no hidden tax consequences for the employee receiving the gift. To qualify it must:
Cost less than £50 (per month per employee)
Not be cash or a cash voucher
It is a pure gift (not a reward for services provided)
It is not part of their contract
Note that directors of close companies are restricted to a total of £300 per tax year of trivial benefits.