The holiday season is fast approaching, and for many businesses, this means planning a staff Christmas party. What you may not be aware of is that your party may not be tax-deductible. In this blog post, we'll delve into how you can write off your staff Christmas party, combining the spirit of the season with financial benefits for your business.
Meeting the "Wholly and Exclusively" Criteria
To qualify for a tax deduction in the UK, your staff Christmas party should meet the “wholly and exclusively” test. This means the expense must be incurred wholly and exclusively for business purposes. A staff Christmas party can pass this test as it's a common way to boost employee morale and foster teamwork.
It's crucial to focus on your employees when inviting guests to your staff Christmas party to meet the “wholly and exclusively” criteria. While you can invite clients or business associates, the primary focus should be on your employees and their immediate families.
How much can you spend?
Hosting extravagant parties may raise questions with the HMRC. It's essential to keep your celebration reasonable and aligned with industry standards to ensure the expense is seen as wholly and exclusively for business purposes.
HMRC allows you a £150 (this figure includes VAT) per head tax exemption towards employee entertainment PER YEAR.
This tax exemption only applies to annual parties which are made available to all employees – so a Christmas party being the perfect example!
You need to be aware of a few of the technicalities surrounding this though as it can be easy to be caught out:
The £150 is calculated as the cost of the whole event – this means that any accommodation or transportation home is included in this figure.
If the cost of the party goes over £150 per employee then all of the costs are taxable as a Benefit In Kind.
Meticulous record-keeping is vital to ensure your staff Christmas party is a tax-deductible expense. This involves keeping receipts, documenting expenses, and demonstrating the business purpose of the party.
Is your staff party just a party?
A staff training day, where dinner forms part of the team training, is a tax allowable cost as it is part and parcel of the training day as opposed to being purely for staff entertainment. If training forms part of your day then it may be claimable under staff training rather than staff entertainment. Again it is important that you keep records of all costs and that you let us know the event is training rather than entertainment.
Similarly an offsite director’s board meeting is a business meeting cost and not classed as entertainment even if lunch or dinner forms part of the overall day.
Lots of small businesses often do not realise that Christmas presents to employees can be taxable. Presents paid in cash, including vouchers, are taxable along with other earnings. However, if employees are given a lovely turkey or a reasonably priced bottle of wine for Christmas then HMRC won’t tax this. There is no actual limit as to what is “reasonable” but as long as you are sensible (say £50) then it should be fine.
Another area employers should keep an eye on is gifts from clients at Christmas. If one of your clients sends an employee a gift to thank them for their hard work throughout the year, it is only exempt from tax if the cost of the gift doesn’t exceed £250.
Hosting a staff Christmas party is an excellent way to boost employee morale and strengthen your team during the holiday season. The added advantage of potentially writing off these expenses on your taxes can make the season even more joyful for your business. If you want to ensure you don’t incur any additional taxes on your Christmas plans then please do get in touch with your Client Manager.