With the holiday season now upon us, employers are putting the final plans in place for their annual Christmas party and staff bonuses. These festivities might be fun, but they can be costly to small business owners. Therefore, you might be wondering: are Christmas party expenses tax deductible and do you pay tax on a Christmas bonus?
Thankfully, we’ve put together this concise guide to help you answer these two common questions in regard to the UK law. You can then get back to celebrating the silly season in style!
Table of Contents
- Are Christmas Party Expenses Tax Deductible?
- Tax Regulations Regarding Company Events
- What if a Company Hosts Multiple Christmas Parties?
- Can Employees Contribute to Lowering the Per-Person Cost?
- What Christmas Expenses Can a Business Claim?
- Do You Have To Pay Tax on a Christmas Bonus?
- Do You Pay Tax When Giving Goods as Employee Christmas Gifts?
- How ExpenseIn Can Help You Stay on Top of Your Expenses This Festive Season
Are Christmas Party Expenses Tax Deductible?
The short answer is yes, Christmas party expenses are tax deductible in the UK. However, there are certain conditions which must be met.
According to UK law, for your Christmas party to qualify as a tax-free benefit, it must:
be open to all your employees
be an annual event
cost £150 or less per person
Not only do these conditions apply to in-person parties, but online or virtual events too.
Tax Regulations Regarding Company Events
So, what exactly do these conditions mean? They may sound straight-forward, but there’s a little more to keep in mind for your festivities.
The total cost per head must not exceed £150, including food and drink, transport, accommodation, etc. If your total comes to £150.01 per attendee, you’ve exceeded the threshold and won’t be eligible for tax deductions.
How to calculate the cost per person
To calculate the cost per person, you should divide the total cost of the party by the number of people who attended, including any guests such as spouses.
This amount isn’t just applicable to your Christmas party either, but is a total figure for all events held throughout the tax year that you wish to claim on.
If you hold an annual Summer BBQ for all of your employees, for example, along with the end-of-year Christmas party, then the tax-free quota reduces to £75 per person at each of these events.
Finally, your business employees – not clients – must be the number one reason for throwing your annual Christmas party, otherwise you won’t be eligible for the tax deductions.
What if a Company Hosts Multiple Christmas Parties?
If you run a large company split across multiple locations, you may be wondering if your separate Christmas parties can qualify as a tax-free benefit. An annual function that’s open to the entirety of your staff based at one location still counts as exempt. You can also put on separate parties for different departments, as long as all of your employees can attend one of these.
Can Employees Contribute to Lowering the Per-Person Cost?
Sadly, the answer is no.
A £155 per-person workplace Christmas party, for example, is a taxable benefit. Even if you ask employees to contribute £10 each, the benefit is still taxed, as it is in excess of the allowable £150 per-head.
What Christmas Expenses Can a Business Claim?
Once you've determined your tax status and spending restrictions, you can focus on what particular Christmas costs you can claim. The following are the most important aspects to consider:
Transportation required to and from the event
Accommodation, if the Christmas event is held in a location that requires staff to stay overnight
Food and drink purchased for the event
Entertainment costs, such as live music or other performances
VAT, if eligible
This festive season, many companies may find themselves hosting virtual events, especially if they have a lot of remote staff.
The good thing is that you can still create a festive mood while obtaining the deduction. You could hire entertainment to share via livestream or send food and drink hampers to staff to enjoy during the celebration. In any situation, as long as you follow HMRC requirements, the expenses are covered.
Do You Have To Pay Tax on a Christmas Bonus?
Yes - Christmas cash bonuses are counted as earnings, and therefore are taxed in much the same way as salary and wages. Employers must therefore add the value of the Christmas bonus to their employees’ other earnings, then deduct and pay PAYE tax and Class 1 National Insurance through their payroll.
Do You Pay Tax When Giving Goods as Employee Christmas Gifts?
If you give goods as Christmas gifts, however, then different rules apply. Christmas gifts aren’t usually deemed a ‘trivial benefit’ that’s excluded from tax rules – i.e., one which is small and connected to an employee’s welfare.
Therefore, if you reward your staff at Christmas with goods instead of cash, you must pay class 1A national insurance on the value of the bonus and report it on form P11D, which deals with expenses and benefits.
How ExpenseIn Can Help You Stay on Top of Your Expenses This Festive Season
ExpenseIn is an all-in-one expense management app which can make tracking your Christmas party expenses easier than ever. With features like receipt scanning, you can simply take a photo of your receipt with the app and let it automatically extract the required information. This is great for recording expenses on-the-go, meaning you’ll never misplace an important receipt again.
If other staff members are in charge of shopping for your company’s annual festivities, then you can also set up automated policies within the app to increase policy compliance and reduce over-spending.
Furthermore, ExpenseIn’s real-time reporting lets you track Christmas event expenditure as it happens, allowing you to keep on top of these expenses and ensure your company remains within the regulations set out by the HMRC to qualify as a tax-free benefit.
ExpenseIn isn’t just useful during the festive season, however, as it can also be used all-year-round. The app brings everything you need to create, approve, and report on expenses into one easy-to-use package. It helps to reduce the time your finance workers spend on monotonous manual tasks, while minimising human error.
