What tax relief can your company claim at Christmas?

As the coronavirus pandemic continues, it is looking highly unlikely that Christmas parties will be the same this year. Under normal circumstances employers who hold annual events, such as Christmas parties, for their employees may be able to benefit from a limited tax relief under specific criteria.

Whilst there is no specific tax legislation that specifies any allowance for employers providing a Christmas party for their employees, there is however, a limited tax relief against the cost of providing social functions for employees.

HMRC can issue the tax relief providing the following conditions are met:

  • The cost per person does not exceed £150 per year, including VAT. If the £150 limit is exceeded, for example £160, the whole amount will be taxable. The cost per person can include food and drink, transport or accommodation, but must not exceed the £150 limit. This is a tax limit and not an allowance. To calculate the cost per head HMRC state you should divide the total cost of each function by the total number of people who attend (including where employees can bring a guest).
  • The tax relief only applies to ‘annual parties.’
  • The purpose of the event must be for entertaining staff and not clients/customers.
  • Multiple events may be held throughout the year as long as the total cost for the tax year does not exceed £150 per person.
  • The event must be open to all employees, not just directors of the company.

If the £150 per person is exceeded, it is treated as a benefit in kind and the employee is subject to National Insurance and tax. The employer may decide to settle the tax charges on behalf of their employees. This can be done using HMRC PAYE Settlement Agreement which means the benefits do not need to be taxed under PAYE.  

Should your company be thinking about hosting such an event in the future and would like more information in regards to the tax relief, get in touch via our contact page and we will be more than happy to help.