Usually, if you lay on a social function then your staff are liable for tax as a benefit on their share of the costs. However, where an annual event takes place (such as Christmas parties) open to all staff, then an exemption can apply.
There is a limit to the exemption of £150 per annum per head and it is an exemption, not an allowance. If your Christmas party cost £155 per head, you might think that £150 would be exempt and £5 would be chargeable but no! The exemption won’t apply at all and the entire £155 would be considered a taxable benefit.
If you had (say) a summer BBQ at £90 a head and a Christmas party at £100 a head, you could claim for one or the other. If your BBQ had only cost £50 a head, you could claim for both. This might not make sense but those are the rules and HMRC are strict in imposing them.
Surprisingly the taxman is generous in allowing staff to bring guests to Christmas parties. If 12 staff each bring a partner, then the cost is divided by 24 to calculate the ‘per head’ amount.
There are no fixed rules, but could each staff member bring along their spouse or partner and all their children? If you tried that to get a ‘per head’ amount, you might be asking for trouble!
As you might expect, the Taxman is none too generous here. Any cash Christmas bonus is taxable the same as ordinary pay. So would be a voucher redeemable in a store.
You can give your staff what the Taxman calls a ‘trivial’ gift at Christmas. HMRC give examples such as a bottle of wine or a turkey. But it can’t be much more than that.
HMRC frowns upon you giving a case of wine or a whole hamper, suggesting these are not ‘trivial’. Each case is looked at on its merits, so you may have to hope the taxman is in a good mood!
Suppose you still want to splash out and really treat your staff? Well, you can agree with the Taxman that you will pay the tax for your staff through a “PAYE Settlement Arrangement” (“PSA”).
So even at Christmas, by careful tax planning you can avoid unpleasant surprises. If any of the above raises question, please get in touch with me, Andrew, at firstname.lastname@example.org or on 01962 832513.