It’s that time of year when we have a flurry of questions around the cost of taking your team out for a social function or party.
The big question is how much can you spend, and how much can you claim back through your business?
In theory, payments to your employees could be treated as benefits in kind, and then have to be reported to HMRC, with potential tax and NIC implications.
So we need your Christmas party to be exempt from these benefit in kind rules.
So let’s cut to the chase and look at what you can claim for your Christmas social:
The social function must:
- be open to all employees
- can be annual (Christmas party or Summer BBQ)
- cost less than £150 per head
What if the cost is above £150 per head?
- If you go over the £150 per head limit, you have to report and pay on the full cost of the event
- This comes under the Benefit in Kind reporting rules, which we have a blog on here.
- Basically the employee will pay income tax and the employer will pay Class 1A NIC on the value of the benefit.
What about events at more than one location?
- If you have a big workforce, you may have several different events, so just make sure all of your employees can attend one of them
We are holding multiple events
- You may invite your employees to multiple events across the year.
- So as long as the above rules apply, and the total cost per head across the year is under £150 you’re still OK.
- If your first event is under the £150 limit, but the second or later events go over the £150, then all of the cost of the second event should be reported as a benefit in kind.
Here’s HMRC’s example on multiple events:
- A company holds 2 annual dinner dance events, open to all employees. The first is £100 per head, the second is £80 per head.
- The total cost per head is £180, so they can’t both be exempt from benefit in kind reporting.
- For employees who attended:
- both events, they will be chargeable only on the benefit of £80 for the second event
- 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 £80.
Online social events
It is quite common now for remote teams to have their Christmas or other social online.
You might send all your employees a hamper with food and drink to be enjoyed by the participants.
As long as all employees are invited, and the total cost per head is below £150, this is all good.
Is your Christmas social allowable for tax?
If all of the above fit, then you will be able to
claim back any VAT incurred (as long as you have a proper VAT invoice)
reduce your profits and so pay less corporation tax
As always, if in doubt get in touch!
And have a wonderful party, celebrating your awesome team members!