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    Work Christmas parties – what are the tax implications?

    As we approach that time of year where Christmas is getting closer and work Christmas parties are being finalised, we explore the tax and reporting obligations of employers when holding annual functions and parties.

    The tax rules include an income tax exemption for annual functions. The exemption is not restricted only to Christmas parties, but any annual event during the tax year. To be exempt, the party, function or event must be:

    • open to all your employees
    • cost £150 per person or less (inc. VAT)
    • occur annually, whether this is a Christmas party, or summer event

    The rules state that the total value for an annual function which is exempt from Income Tax, and therefore doesn’t need reporting to HMRC, is £150 per head, and in the instance that more than one event is held within one tax year, the cost of both functions will remain exempt from income tax as long as the combined cost per person does not exceed £150 per head.

    If the combined cost did exceed this limit, the benefit of the second function must be reported as such to HMRC, either by payrolling the benefit, or by submitting a P11D form for each employee who attended. Alternatively, the cost of the second function could be reported on a PAYE settlement agreement with the approval of HMRC, so the employee is not hit with an additional tax liability.

    Remember – when calculating the cost of the function per head, the VAT and the cost of transport and / or accommodation (if the employer is providing it) must also be included.

    The rules now explicitly include virtual or online events under the definition of annual parties and functions, allowing the same tax exemptions to apply.

    Christmas gifts

    An employer may wish to give employees a gift at Christmas as a token of goodwill. Here, the “trivial benefits” exemption can be utilised to ensure gifts remain tax free. Again, there are conditions that must be met for the exemption to apply:

    • The cost of providing the benefit must not exceed £50 (including VAT).
    • The benefit must not be cash or a cash voucher.
    • The employee must not be contractually entitled to the benefit.
    • The benefit must not be provided in recognition of services performed or to be performed by the employee.

    Get in touch

    If you are currently finalising your Christmas party plans, and are unsure about the tax implications, we can help! Get in touch by emailing enquiries@pmm.co.uk and a member of the PM+M tax team will get back to you.

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