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Tax break for festive office party

HMRC is offering tax breaks for employers planning their annual Christmas party as the clock counts down towards the yuletide festivities.

Any business providing social functions and parties for employees usually has certain national insurance and reporting obligations.

However, employers are exempt from reporting anything to HMRC - including tax and national insurance - if the party:

  • costs less than £150 (including VAT) per employee
  • is annual, such as a Christmas party or summer barbecue
  • is open to all your employees.

Larger businesses with workers in different locations may find it difficult to get everyone together at a certain place and time.

Fortunately, employers can take advantage of the exemption by putting on multiple parties in different places so long as every member of staff is able to attend.

Customers of the business and spouses or civil partners are included in the exemption, although the party risks losing the tax break if the number of customers exceeds the number of employees.

For instance, if a Christmas party has 30 customers and only 10 staff members on the guest list, the employer will be unable to claim.

With the Christmas party season poised to get into full swing over the coming months, employers should also be aware that any cost over the £150 limit will be fully taxable.

A business charging employees £200 per head to attend the Christmas party can expect to be taxed the full cost of the party - not just the £50 excess over the £150 limit.

What to report?

Cost per head is total cost divided by the number of attendees.

If this produces a figure of £150 or less and the other criteria are satisfied then the exemption applies.

But, if any of the events you put on aren't exempt, you'll have to report the costs to HMRC and pay national insurance contributions (NICs) on them.

In order to do this, you must:

  • report the cost on each employee's P11D form
  • pay class 1A NICs on the event's full cost.

If you've already used up the £150 limit on another event, you'll have to report and pay the full costs of any extra events that exceed this limit - even if they cost less than £150 per head on their own.

We can help with your tax obligations.