With Christmas approaching, your business might be planning your annual staff Christmas party. As a business owner, you should get familiar with staff Christmas party tax and VAT consequences. This could potentially affect your employees if not handled correctly.
How to prevent staff Christmas party tax consequences
You can deduct the cost of an annual staff party for tax purposes. However, this cost is only deductible if it relates to employees and their guests. This includes directors and other employees in a company, but not sole traders or business partners in the case of unincorporated businesses.
A staff party is considered a benefit to employees. Therefore it is important to follow guidelines to avoid employees being charged with tax.
Who can I invite to a Christmas staff party?
The Christmas staff party must be open to all employees at a particular location. Additionally, you can invite other guests like clients or business partners. It is also common to allow employees to bring their partners or other guests.
How much can I spend on my Christmas party?
Annual business events, like Christmas parties, are typically not taxable, provided that the cost per attendee does not exceed £150. All costs must be taken into account. This includes transportation, food and drink, accommodation, entertainment, venue and VAT. If your costs exceed £150, your employees will be charged tax on the average cost, plus the cost of their guests.
Can I reclaim VAT on my Christmas party?
You can recover VAT input tax on staff entertaining expenses. Unfortunately this does not apply to any non-staff guests. You can only reclaim all the VAT if your other guests pay a reasonable contribution to the event. If you choose not to charge guests for the party, you can only recover a portion of the VAT, proportionate with the number of employees attending.
Can I give my employees a Christmas present?
You can gift your employees a trivial seasonal gift, which will not be taxable. This includes items like a bottle of wine or a box of chocolates. If your employees receive individual gifts of more than £50 per gift, they will no longer be “trivial”.
We recommend giving trivial gifts by way of vouchers which are not exchangeable for cash, each voucher should not exceed £50.