How can you save money on your Christmas party?

You don’t need to work in Downing Street to enjoy a Christmas party this year.  While many employers may feel that a big Christmas party is not appropriate considering the new variant of COVID in circulation, the government has encouraged businesses to carry on as normal.

Generally, benefits in kind for staff are taxable, however, an annual party/event that costs no more than £150 per attendee will not be subject to a tax charge.

This cost is to include all the costs of providing the party/event, such as transport, accommodation, food and drink and most importantly the entertainment.

Be very careful with the calculation. The £150 is not an allowance, it is an absolute limit.  To go over this limit will bring the whole cost in to a taxable benefit in kind.

Note also that the cost is calculated per attendee, not employee, so the more the merrier.

The small print to consider is that the party must be available to all staff generally to attend, and that it must be annual. The £150 is to cover the whole year, therefore if two annual parties cost £75 each, the limit is not breached, and the tax exemption will apply.  If the total exceeds £150, but neither party alone breaches the £150 limit, the employer will choose the most expensive party for the tax exemption to apply.  The other party will either be a benefit in kind on the staff, or the employer can apply for a PAYE settlement agreement to settle the tax liabilities directly with HMRC and avoid the staff having to pay tax to enjoy their party!

If businesses are remaining cautious and opt for a virtual Christmas party, then the tax exemption on annual parties is still available. The same rules apply, but the costs will be, for example, a food and drinks hamper for the employee to enjoy the online entertainment from the safety of their own home.

Trivial Benefits in kind

Under Trivial Benefits rules, employers may make tax-free Christmas gifts.

The rules allow gifts of up to £50 in value on the conditions that:

  • It is not cash or a cheque
  • It does not excess £50 in value (this is the VAT inclusive price)
  • It is not in recognition for past services
  • It is not contracted, such as salary sacrifice

A gift of a turkey or a high street voucher which cost no more than £50 would therefore be within the trivial benefit in kind rules. 

Any benefits falling within these rules are not reportable on P11Ds.