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Avoiding a Tax Trap At Staff Christmas Parties
03 Dec 2024
If you’re organising a staff Christmas party this year, you won’t be alone—but make sure to steer clear of potential tax pitfalls.
UK businesses planning festive celebrations for their employees are encouraged to navigate tax regulations carefully to avoid unwelcome surprises; exceeding the £150 tax-exempt limit for staff parties could result in the event being treated as a taxable benefit, with potential costs shared between the business and employees.
The £150 Tax Exemption
Under HMRC rules, events like Christmas parties can be exempt from tax and National Insurance (NI) if they meet these criteria:
- Open to All Employees: The event must be inclusive for all staff.
- Annual Occurrence: The event should be part of a recurring tradition, such as a Christmas or summer party.
- Cost Limit: The total cost, including VAT, transport, and accommodations, must not exceed £150 per attendee. The calculation includes dividing the full cost of the event by the total number of participants.
If these conditions are breached, even by a small margin, the entire amount becomes subject to tax and NI. The exemption applies to multiple annual events collectively as long as their combined costs stay within the £150 cap. Additional exemptions may apply if partners or spouses attend.
Mitigating Excess Costs
Businesses exceeding the £150 limit have two main options:
Report as a Benefit in Kind: The additional costs can be reported to HMRC, resulting in employees being taxed on their share, although this might not go down well with staff morale.
PAYE Settlement Agreement (PSA): Employers can agree to cover the tax and NI on the excess costs through an annual lump-sum payment, simplifying the process and sparing employees from direct tax implications.
Alternative Staff Gifts
For smaller gestures, HMRC’s ‘trivial benefits’ exemption allows employers to provide gifts valued at £50 or less without incurring tax or NI, provided these are not cash-based or performance rewards. There is an annual limit of £300 for directors and their households in close companies.
How WR Partners Can Help
If you’re not sure whether you have exceeded the threshold, contact our team today at: 08000 664 664 or email: hello@wrpartners.co.uk or use the contact form below.
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