Tax and Christmas parties

With the festive season fast approaching, ICAEW is reminding employers that even HMRC has got into the spirit of giving, by providing the means for a tax-free staff Christmas party say Harris & Co accountants Northampton #accountantsnorthampton

The rules apply to any party or similar function, which must be open to staff generally or to workers at a particular location. The tax-free limit applies for a tax year, so an employer can put on both a summer party and a Christmas dinner as long as the total cost for both is less than £150 a head.

The £150 limit includes a whole host of items such as accommodation and transport, not only food and drink. As long as the cost per head stays under the limit, employees can bring their significant others along, and businesses will get tax relief on the total costs.

Anita Monteith, ICAEW tax faculty technical manager, said:

‘A Christmas party can be an excellent way of boosting staff morale as days get shorter and can make employees feel valued for their hard work, as well as encouraging productivity. Christmas and gifts from the taxman come but once a year - make sure you take advantage.’

However, the institute has words of caution for employers keen to shed the image of being a Scrooge, pointing out that if a company spends as little as one penny over the £150 limit, the full amount spent will become liable to income tax and National Insurance for both staff and employer alike.

In addition, ICAEW is reminding employers who want to make Christmas special with gifts to employees that these are taxable. Cash presents, such as Christmas bonuses or vouchers redeemable for cash, also have to have tax and National Insurance contributions paid through the PAYE system. The alternative for employers who want to give, but without a tax charge attached, is to set up a PAYE Settlement Agreement with their tax office.