Bah humbug


Christmas parties – who pays is always the great debate, before the party is even planned, and then we’ve all reveled in the aftermath of one where someone has too much to drink!!

As employers we don’t want to appear stingy and we do want to reward our staff for all the hard work they have done but we also must fall in line with HMRC and there are some quite severe consequences, from HMRC, if businesses exceed the permitted £150 limit per employee per year allowance for staff events.

On the face of it £150 per employee per year appears ok but what we have to remember is that this is just for the food and drinks bill. If you pay for hotels, train fares, taxis etc then this plus the food and drinks may push the cost over £150 ( and just to confuse matters this figure is inclusive of VAT).Then technically, this cost should go on an employee’s annual tax return: their P11D. But if a business had to put this on someone’s P11D they’d never go to the party, so most companies put it on their PAYE Settlement Agreement (PSA) instead, and carry the costs themselves.


What happens if costs exceed the £150 limit?

If the cost of qualifying parties goes over £150 per head then unfortunately all the costs (not just those above £150 per head) are taxable as a benefit in kind. This must then be reported on each employee’s P11D or grossed up and paid through a PSA. The result for the company could mean a party of £160 per head could lead to an additional tax and national insurance bill of a further £140 per person.


So how can you avoid getting on the tax-man’s bad side this festive season?

Here are a few tips –

  • Keep track of employee expenses for the event as this could tip the scales and put you over the limit.
  • Invite ALL employees. Sorry, you can’t have separate Christmas parties and still claim them under the £150 allowance
  • Keep an eye on the ‘gifts’. Don’t forget that there’s a £50 limit on employee gift allowances per year as well. So giving a high-performing individual a nice bottle of wine at Xmas is fine, provided you haven’t given birthday gifts throughout the year.
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