Christmas parties – tax deductible or taxable?

Tasty puddingIs it tax-deductible for the Employer?

Yes.  The general rule is that entertaining is not tax-deductible, no matter how essential it is to winning business, but by exception, staff entertaining IS tax-deductible.

“Staff”: in practice, the definition of ‘employees’ is extended to include retired members of staff and the partners of existing and past employees.

Could you use this to entertain customers, clients etc?  No – it remains non-deductible where “the provision of the entertainment for the employees is incidental to its provision for the others”.

Is it taxable on the employee?

Generally, any benefit that an employee receives “by reason of the employment” is taxable on the employee, just as any salary would be taxable.

By exception, an Employer can provide hospitality of up to £150 per year, free of tax and NIC to the employee, and this is tax-deductible for the employer.

HMRC make it more complicated however.  If an employer holds two events in a year, one costing £80 per head, and the other costing £75 per head, because the two together exceed £150, only one gets the exemption.  The other is wholly taxable on the employee as a benefit, and so would need to be entered on form P11D.

The “cost” is the gross, VAT-inclusive cost.

The “cost” will include other things like travel and accommodation.  If for example the employer provides taxis or minibus transport for a meal at an hotel, with rooms for the night for those who don’t drink-and-drive, then the meal, travel, and accommodation are all part of the cost to be taken into account.

The function must be available to all employees, so for example a director and her partner going for a Christmas weekend break at a hotel, at the company’s expense, just for the two of them, will remain taxable.

(Sources: BIM45033;  EIM21690;  CTA2009, s1299;  ITEPA 2003 s264.  Note that s264 still says £75, not £150  – we can’t find the amendment.)

, , ,

Comments are closed.