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Christmas party tax breaks

workpartyWith news from the CIPD that 77% of private sector organisations are planning to throw a Christmas party, perhaps not everything is doom and gloom at the moment. HMRC’s guidelines on Christmas parties could bring further cheer to businesses with tax concessions on annual celebrations.

HMRC states that where an annual Christmas party or alternative annual function of a similar nature, such as an annual dinner dance is open to the staff generally, the HM Revenue & Customs will not seek tax on the relevant benefit arising to each employee where it does not exceed the allowable amount. In this context Tax Offices will treat expenditure of up to £150 per head per annum as tax free. "£150 per head" means the total cost of the function, including VAT and any transport or accommodation provided by employer, divided by the number of people attending.

Should the cost rise to more than £150 per head, HMRC shall claim the full amount of tax for the benefit divided among the relevant employees.

The concession applies to Christmas parties or other annual functions and what the HMRC charmingly calls “dinner dances”, but only if the function is open to staff. If, for example, you were to hold a Christmas party solely for directors, tax would be levied on the benefit, regardless of the cost per head.

You can claim the concession on more than one party – but providing that the total cost per head of all parties does not come to more than £150. If that is the case, then each function will be looked at and the most beneficial function with a cost per head of less than £150 will be exempt.

  • 1st December 2008
  • 3 Comments

3 Comments

1

Darren Whatling

Is the £150 tax free applicable per person per year? In that I mean if I did not attend the main christmas party, but attended a meal that was say £30 per head am I not £120 in credit?? Whereas others at the same meal did also attend the christmas party (say that christmas party was £140) would be over their allocated £150 tax free sum.?..
Sorry if thats a bit confusing?!

2

P Simon Parsons

Firstly it must be pointed out that the £150 per head (that is for the attendees whether they are employee or not and not just the employees) is an exemption and not an allowance to be offset. The cost per head is derived by taking the cost of the event and dividing it by the number of attendees.

For the exemption to apply, the event must be generally open to all and not be exclusive to a particular group. However events based on seperate working locations or departments of employees are allowed if generally available to all employees within the location or department. Unless the principle of generality is achieved, then the full amount is taxable against the employees who attended. For example, an exclusively Directors event which excluded employees would not qualify for the exemption.

If a number of events are held by the employer and one of them takes the average cost per head above the £150, then the employer needs to decide which events are exempt (under the £150) and which events are taxable (an event which casues the cumulative average per head to exceed £150).

The cost of the event which is chosen to be taxable is fully taxable (not just the amount exceeding £150) and gainst all employees who attend that event for the number of attendees they brought to that event, even if they did not attend the prior exempt events.

For example:
-event 1 cost £100 per attendee (£200 per employee as partners attended as well)
-event 2 cost £80 per attendee (£160 per employee as partners attended as well)

Employer decides to apply the exemption to event 1 as event 2 causes the annual average to exceed £150 per attendee.

So for employees who attended:
-both events, they will be chargeable only on the benefit of the second event (2 x £80 = £160)
-only the first event, there will be no chargeable benefit because that event is exempt
-only the second event, they will be chargeable on the benefit of the second event (2 x £80 = £160)

The principle is that it is an exemption and not a personal allowance. So if an event is subject to tax, then all employees at that event will pay a tax charge for themselves and their household who attend that taxable event.

3

Alexander

Can Birmingham city council Education get money back for this if they worked in a school and whated to have a christmas party

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