It is the time of year when companies are going out for Christmas parties to celebrate a good year of working hard. Can you claim any kind of tax exemption for a Christmas party or other similar ‘trivial benefits’? Read on to find out.
Please note we are not accountancy/tax experts – always triple check the details first before making any decisions as we cannot be held liable for any mistakes.
Exemption limit: How Much Can You Spend?
First things first, the important rule to remember is that an employer can spend up to £150 per year (VAT inclusive) on annual functions for staff.
There can be any number of parties throughout the year, as long as the total does not exceed this financial exemption limit of £150. (source)
For example there could be two parties at £75 each, and the this would fit inside the exemption limit.
Note the £150 is not an allowance – meaning that if you over spend by £10 – the £160 figure will be shown on the employees P11d as a taxable benefit in kind, not the £10 overspend.
If there is one party for example costing £140 and another for £40, although this takes the total over £150 the second function can still be covered under the trivial benefits exemption as the cost did not exceed £50. (source)
Calculating the individual cost per employee
To calculate the individual cost per employee, you would add up all the costs involved in the party (everything from food to transportation costs), and divide this figure by the number of staff and guests in attendance.
The party has to be for the benefit of all staff – not just the directors. If you have different divisions you can have separate parties for different divisions.
There is no relief on parties that are exclusively for directors and their family, except in circumstances where it is a family company and you are the only employee.
Other guests can be invited in addition to staff, but the primary purpose of the event must be to entertain staff.
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