As the decorations go up and the opening of advent calendar doors begins, Pierce Chartered Accountants suggests that Lancashire businesses should review their Christmas party plans to avoid tax hangovers!
Employees are exempt from tax on the cost of an employer provided annual party where the cost is less than £150. This event can be a Christmas party or other annual function, such as a summer BBQ, and can cover more than one occasion if it doesn’t exceed £150 per head in total across eligible events.
When calculating the cost of the event this should include food, drink, entertainment, venue hire, transport and overnight accommodation as well as VAT in arriving at the total cost per attendee.
The amount of £150 is a limit, not an allowance. If the cost is £151 per person attending, then the whole benefit becomes taxable.
The event should be primarily for entertaining staff and be open to all employees. If guests are invited, then the total cost should be divided by each attendee (including non-employees). If a business is spilt over various locations, then separate events can be held, so long as all members of staff have the option to attend one party.
The employer will also be able to claim a tax deduction for the cost of the staff party even if it exceeds the £150 per head limit.
Generous employers who give their staff a gift at Christmas should also consider the tax implications for their employees.
If you give your employee a non-cash gift worth no more than £50 the employee does not have a tax liability on the benefit in kind. For example retail vouchers, flowers or a hamper would be eligible, but the gift must be no strings attached such as a performance award and must not be a contractual entitlement.
Companies who give their employees a cash bonus will have to pay the bonus through the payroll and deduct tax and National Insurance as normal.
For further information about tax pitfalls during the Christmas period, call Pierce on 01254 688 100.