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Yes, Christmas is nearly upon us again and the EST offices are starting to look fabulous… Now all we need is for Chelsea and Danielle to find us the perfect real Christmas tree!

Now that we have organised our Christmas party (and more importantly, decided on our food choices!) I thought that it would be a great time to remind everyone on the (not so exciting) tax consequences of Christmas Parties.

LaurenXmasIn order for the Christmas Party to be exempt from tax and national insurance, the employer needs to ensure that the party is held annually, be available for all employees (even the Scrooges!) and the total cost cannot exceed £150 per person (inclusive of VAT) for the tax year. If the cost per person does exceed £150 (let’s say £151), the whole amount is taxable (but at least you have some great memories… Or have you!?)

If you have two or more annual functions and you have managed to be thrifty enough to still spend less than £150 per person then no tax will be payable. But - if one function had a cost per head of £90 and the other had a cost per hear of £130 then you will need to choose which one would best utilise the exemption (hmmm… I know which one I would choose!). One quick thing I would like to point out is that the £150 per head is an exemption and not an allowance so the £90 per head function above would be chargeable on the full cost per head and not just the excess (darn it!)

Now when I say about tax charges, it actually means for the employees! Each employee that attended will need to pay tax and national insurance on the benefit of going to the party (BOO!) and should be declared on a P11d or the grossed up tax can be paid by and extremely generous employer (hint hint Barry!) through a PAYE settlement agreement (PSA).

The cost of entertaining your employees is a tax deductible expense in your accounts… I shall try to advise Barry of how much money he is saving whilst dancing to S Club 7! Also, VAT generally isn’t recoverable on entertaining BUT guess what?! It is for employee entertaining – one thing to watch out for though is that the VAT will not be allowable for partners or former employees. Therefore, if you are inviting guests, you will need to have even more fun whilst preparing your VAT return so that you can apportion the relevant costs to “staff” and “non-staff”.

If your staff consists of you and you alone… All is not lost! You can have an annual party all on your own (you may even want to invite your partner!) and as long as the total spend is less than £150 per head, there will be no tax payable (happy days!). It will be tax deductible in your limited company account but you will not be able to recover the VAT because HMRC do not accept that the input VAT has been incurred for business purposes.

“How about Christmas Gifts?” I hear you ask… Well, treating your hardworking employees to cash will always be taxable along with their other earnings and the same goes for vouchers. If you are an employee and you randomly receive a Christmas turkey, it’s because your employer has been savvy and decided to go for a tax efficient route – as long as the cost is “reasonable” HMRC won’t seek to tax it… This also goes for an “ordinary bottle of wine” or a box of chocolates.