Christmas parties – Is it time to discuss any tax consequences?

Christmas is on its way…

We’ve mentioned it.

The dreaded ‘C’ word in September, Christmas!

However, it is an important topic to be discussed as many businesses will be thinking about the run up to Christmas and of course, the Christmas party.

When companies organise events for their staff they rarely consider the tax consequences. Have you?

Do you know what the tax consequences are?

Staff entertainment what is it?

Staff entertaining simply means a social function, staff event or party that the employer has provided. Is it taxable?

Well that really does depend! What you need to report and pay tax on depends if:

  1. It’s an annual event
  2. It has been made available to all of your employees
  3. If it cost more than £150 per head (for all events in the year)
  4. How many events you provide during the tax year
  5. Whether the employee is a director, and what they earn from the company

So is a Christmas party exempt?

To be exempt from paying any tax and national insurance on your party or similar social function it must:

  1. Be open to all of your employees – everyone must have an invite to attend.
  2. Be annual such as a Christmas Party or a Summer Party
  3. Must cost £150 per head or less

These rules also apply to any online or virtual parties!

If you are a business that has multiple locations, you can still benefit from the exemption. This means that you can hold an annual event in different locations as long as ALL employees are invited to attend one location.

If you hold say a Summer party and a Christmas party, so long as both parties do not equate to more than £150 per head, the exemption still applies.

If you have a salary sacrifice arrangement, you will need to report how much each social event is worth to each employee.

So what is taxable?

If the annual events throughout the year do not meet the requirements for the exemption, it will be taxable.

What also catches companies out is that if the cost of multiple annual events is more than £150 per head, the whole amount becomes taxable!

Yup, that’s right, there is no part exemption to cover the £150 and then taxed on the amount above it. The whole amount is taxable! Scrooge!

For those companies that have a salary sacrifice arrangement, if the costs of the events are less than the amount of salary given up, you will need to report the salary amount instead.

How to report the tax due

You will need to prepare form P11d which covers the tax year i.e. 5 April. This will be due by 6 July after the tax year it relates to.

This means that the benefit will be taxable on the employee and the company will need to pay class 1A national insurance.

If you’re unsure of if you have a benefit in kind, please get in touch today.

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