Tax Rules around Christmas Parties and Gifts.
November 9, 2023

As the countdown to the festive season begins, many of you will be planning your workplace party. It’s about this time of year that clients will often contact us to clarify tax rules around Christmas parties and gifts. In this article, we will explain which costs are tax deductible and which aren’t. Read on, then all you need to do is enjoy the party!

Tax Rules around Christmas Parties.

Not just for Christmas:

Q: When is a Christmas party, not a Christmas party? A: When it’s a summer get-together.

You don’t have to hold your Christmas party during the festive season. Your annual get-together qualifies as a tax-deductible event at any time of year. However, it must be an event that occurs or that you expect to occur every year. You can even have more than one annual event, but there are a few other rules to consider, which we’ll explore below.

Staff (and Plus-Ones) Only:

Your Christmas party is tax deductible for your staff and their partners… But not clients and suppliers. This rule doesn’t mean you can’t invite your favourite customers, but you won’t be able to deduct any costs associated with their attendance.

Another thing to consider is that to qualify as a non-taxable, your annual get-together must be open to everybody, from Terry, the tea boy, to the head honcho. In a large firm, you can hold several parties, but you can’t exclude people. As an example, you couldn’t decide that this year, your festive fling was only open to company directors.

How much can you spend?

Your costs per person must not exceed £150 per person (per year if you have more than one event). This £150 applies to all qualifying attendees. So, if you invite plus-ones, you can spend £150 for them to attend too. But the £150 must cover all associated expenses from crackers to carriages! It even includes the VAT. In short, if the business pays for it, you need to include it in your cost calculations.

Many business owners get caught out because they think the £150 per person is an allowance. They often believe that if they spend £180 per person, only £30 is a taxable benefit, but this is not the case. If the per-head calculation exceeds £150, then the total amount of the event is chargeable to staff as a taxable benefit. And if your team have bought a plus-one to party with them, they’ll be taking on double the per-person taxable benefit.

In these circumstances, you are obligated as an employer to report the benefit due for each staff member using a P11D form. Your employee will pay income tax on the benefit, and you will be charged Class 1A national insurance.

You can learn more about annual parties and social functions on the GOV.UK website.

Tax Rules around Christmas Gifts.

If you gift your employees a cash bonus or gift voucher, HMRC considers these a taxable benefit. Again, you must report the benefit using a P11D form. Your employee will pay income tax on the benefit, and you will be charged Class 1A national insurance.

However, you can gift your employees a seasonal gift (generally considered a trivial benefit) that costs less than £50 per head without any tax implications or the associated reporting.

You can learn more about what to report and pay regarding employee Christmas gifts and bonuses on the GOV.UK website.

We hope this article has helped you understand the tax rules around Christmas parties and gifts, but if you still have questions, do get in touch, and we promise to answer them in jargon-free language!