After several years of many companies having no Christmas gathering due to the Covid pandemic, many are raring to get back on the party scene this year.
Directors of limited companies could spread the festive cheer by ensuring the Christmas shindig doesn’t cost their employees anything in Income Tax or National Insurance. To do this, there are some rules that must be followed:
1. All for one and one for all
The party must be open to all employees – it can’t be an exclusive event held just for the directors, for example. However, if it is not practical for all employees to attend one event, such as where an organisation has multiple sites, an event open to all employees at one location will be exempt.
2. Hey big spender!
The cost to the employer must not exceed £150 per head (including VAT, taxis and overnight accommodation). This is calculated as the cost of the party, divided by the number of attendees. Please be aware that this is an exemption, not an allowance, so if the total cost per head goes over the £150 limit, the whole amount will be subject to Income Tax and Class 1A NICs.
3. Regular as clockwork
The event must be an annual event, such as a Christmas party; a one-off event would not qualify for the tax exemption.
4. Use it, don’t lose it
The exemption applies to each tax year so, as long as the total per attendee per year doesn’t exceed £150 and the other criteria are met each time, the exemption can be split across more than one event, for example the Christmas party and an annual summer barbecue.
To recover the party expenses, when working out your taxable profits, the party costs should be recorded as a tax-deductible expense, which will reduce the Corporation Tax payable at the end of the year.
6. Don’t look a gift-horse in the mouth
Tax exempt employee gifts can also be given, as long as the total amount per gift (including VAT) doesn’t exceed £50 and does not come in the form of cash or a voucher. This £50 is separate to the £150 employee entertainment exemption.
Get it touch
If you would like more information about this tax exemption, please get in touch. Call us on 01483 205850, or use our contact form.