The Christmas season is almost upon us, the tree is going up and the girls in the office are buying their little black dresses. It’s the time of the year where you thank your employees for all their hard work & show them how valued they are to the company. When planning your ‘Christmas Party’ be sure you understand the tax situation for you and your staff concerning ‘staff entertaining’. Don’t fall fowl this festive season, learn whether your event is exempt or whether you’ve breached the limits and need to report to HMRC as an employee taxable benefit.
Tax Relief for Annual Staff events
HMRC provides limited tax relief for the cost of holding an ‘annual event’ (Christmas party/summer BBQ etc) for your staff, however, to be eligible for this relief certain conditions do need to be met:
Multiple Annual Events
It is important to note that your company MAY hold more than one ‘annual event’ per year, but to be tax deductible the total claim for all events in that year must not exceed the £150 per head threshold.
EXAMPLE:
If you had an annual summer barbecue which cost £50 per head and the Christmas party came to £105 per head, this would exceed the £150 per head limit meaning that the whole £50 for the summer barbecue would be classed as a taxable benefit and need to be reported to HMRC for each employee in attendance.
Reporting of Employee Taxable Benefits
You’ll have to report and pay on the full costs of any additional events that go over the £150 limit, even if they cost less than £150 per head on their own. You are however, allowed to pick & choose which events best utilise the £150 exemption. To report the costs to HMRC you must report on each employee’s form P11D & pay Class 1A National Insurance on the full cost of the event. Shareholders are not included in the exemption if they aren’t employees or directors
Claiming Corporation Tax Relief
A company can gain tax relief by offsetting any costs against their taxable profits and must be reflected in the CT600 for the same accounting period. Companies holding an annual party for their employees, such as a Christmas party, are entitled to claim relief on their corporation tax liability. However, as previously mentioned, the company will have to adhere to certain rules in order to be eligible to claim this relief.
In the eyes of HMRC, the limit of £150 for any annual party is inclusive of all costs from start to finish. This includes the taxi fare to and from the venue, any accommodation required, food & drink, as well as the cost of the venue itself.
Should the cost per person exceed £150 by even a single penny – yes the tax man is that picky – then the entire cost, not only that over the £150 limit, will not be corporation tax deductible, and would will be taxable as a ‘benefit in kind’ on each employee.
HMRC have issued guidance for companies to help calculate the cost per head. They recommend totalling the entire cost of the party and dividing that figure by the total number of attendees – this includes all non-employees as they are also included in the cost per head.
If HMRC’s stipulations are adhered to, the company will be able to offset the cost of a Christmas do (or any annual party of the company’s choosing) against the taxable profits for the same financial year.
Final Thoughts
When it comes to your office Christmas party, there are many aspects that will have an impact on both your business, and your employees. By ensuring you stick to the guidelines stated above, and those defined by HMRC, your business can take advantage of claiming corporation tax relief.
The rules surrounding office Christmas parties can be complex, and not all aspects will be applicable for every company. Price Davis Accountants have over 20 years’ experience & we can provide expert advice on gaining the benefits from an office party. Contact us today: 01452 812 491, info@pricedavis.co.uk