The festive season is almost upon us again, the time for merriment and much celebration over the period with Christmas parties. If you haven’t already planned your party yet, let’s take a look at how HMRC view the coming festivities.
£150 is still the magic number
As an employer you are allowed to spend up to £150 (inc VAT) per employee for all annual entertainment events. You can choose to have several parties throughout the year and as long as you do not exceed this threshold, there’s no tax or National Insurance to pay.
If you go over £150 limit then you will be liable to pay tax on the full amount, i.e. if you pay £160, the tax payable will be on the total £160. So, remember when planning to include the transport afterwards, if you are paying for this.
Employees earning less than £8,500 do not have to be declared as long as they are not a director.
VAT is also recoverable on expenditure for employees.
Be inclusive
The party must be open to all employees in your location. If you have more than one location or different departments, you can have separate parties as long as all your employees can attend one of them. If you choose to have a party just for managers, HMRC would view this as a jolly and therefore a non-taxable business expense.
Guests that aren’t employees
If you are inviting sub-contractors, suppliers or customers that aren’t employees to your party, you are unable to claim tax relief. This would be treated as business entertainment.
Sole Trader, Partnership or Limited Company
You are not professed to be an employee if you are a sole trader or a partner, any entertainment costs that you incur, would need to be accounted for through your drawings. If you are a director of a limited company, you are deemed as an employee and the £150 per head rule applies.
Giving Christmas gifts
If you wish to display your appreciation for the hard work of your employees throughout the year, you may be considering either paying a cash bonus or giving a gift.
Paying your employees a cash bonus is considered earnings by HMRC and as such, tax and National Insurance is required to be paid.
If you are considering giving a voucher, you would add this to your employee’s P11d, tax and National Insurance would be applied.
If you are pondering giving your clients gifts this year then there are a few rules to follow, to keep the gift tax deductible:- you are allowed to gift up to and not exceeding £50 per year to a client, the gift is required to bear a conspicuous advert for the business, the gift must not be food, drink, tobacco or exchangeable vouchers.
We hope this has given you a good insight into HMRC views on all things Christmassy. If you would like any advice relating to your own circumstances, then please call us on 01253 899989, we’d be glad to guide you through.
