The true cost of Christmas parties in the workplace could land employers with a sobering bill from HM Revenue & Customs in the New Year.
The warning comes from Caroline Harwood, head of employer solutions at Grant Thornton in the West, who points out that for employers who want to reward hard-working staff, tax relief is only available for annual parties which are available to all staff, limited to £150 (VAT inclusive) per head.
Tax restrictions mean that the cost of entertaining employees may fall within the benefit in kind rules giving rise to tax liabilities to employees.
The £150 budget includes all costs from the start to the end of the event and must include taxis home and overnight accommodation. If the cost exceeds £150 per head, then the whole amount is taxable as a benefit in kind, not just the excess. For example, 25 individuals (including employees’ spouses) attending a function at a cost of £165 per head would give rise to a tax/NIC liability of just under £2,000, whereas the same function at £150 per head would be tax free.
“This could give rise to a tax liability to the employees but also increases compliance costs as benefits must be reported on the employees’ form P11D,” says Caroline. “Alternatively, it may be possible for employers to pay tax and National Insurance due through a PAYE Settlement Agreement.”
She adds that there are other festive items which also have a tax implication for employers. “Gift vouchers are always taxable, irrespective of the amount,” she said.
“Tangible seasonal gifts however, such as an ordinary bottle of wine or box of chocolates, are generally not taxable provided the cost is reasonable.
“The key is to check with HMRC or a tax expert before planning your Christmas party or buying employees gifts. A large tax bill in January, either for employers or employees, will mean that celebrations will be remembered for all the wrong reasons.”
