Tax implications of Christmas Parties and Gifts

Staff Christmas parties are free of tax if the total cost per employee is £150 or less. Above this figure, even if only by £1, then the total amount becomes taxable on the employee, not just the excess. This cost is the total VAT inclusive cost, even if the employer can recover the VAT, and it also includes incidental costs such as travel and accommodation. The employer should simply divide the total cost by the number of attendees, and not the number of employees if this is more.

In addition to the £150 limit, the function should be primarily for entertaining staff, it must be open to all staff, and it should not be just for directors ( unless of course all staff are directors ).

The £150 limit applies to all of the company’s annual functions, so if there is a summer barbeque with a Christmas party, then the £150 limit is spread across both functions.

If you have exceeded these thresholds, then please speak to our office for further advice on reporting the amounts to HMRC.

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