A Christmas party can be not only an enjoyable way of rewarding employees, but it can also be tax-efficient. According to HMRC rules, employees and their partners do not pay tax and national insurance on any parties they attend so long as the cost to the business is less than £150 per head.
The cost of the function is calculated including VAT and also any extras such as transport or overnight accommodation. The total cost of the function is then divided by the total number of people attending, including non-employees in order to arrive at the cost per head.
If the cost per head of the Christmas party is greater than £150, then the whole cost will be subject to tax and NI. As an example, if the cost of the party, transport and accommodation transport or overnight accommodation averages out to £200 per head, then the employee is taxed on £200. If their partner also attended, then they be taxed on a benefit of £400. At CHW Small Business Accounting we can help you calculate how much tax and NI you’ll pay based on how many guests you intend on inviting.
Another option which influences how tax and NI is applied to events are if an employer provides more than one party per year. For example, if three parties were held over the course of the year costing £110, £40 and £75 per head respectively, then tax and NI would be levied on the £75 party only because the £110 and £40 parties would be covered by the £150 annual exemption.
As always, with tax matters, you should consult your Bolton accountants for advice before you make any decisions.
For advice on tax related issues click here to contact us at CHW Small Business Accounting.
Want to find out how we can help you and your business? Get in touch today and let's have a chat.
4 July 2019
With a major shake-up in the treatment of VAT in respect of building work is imminent – our Senior VAT Manager, Carolyn Van Hecke, highlights the implications for those in the construction industry and why it has never been so important to apply the correct VAT treatment.