As the festive season approaches thoughts turn to office Christmas parties. So what stance does HMRC adopt when an employer arranges a Christmas party for their staff?
Subject to satisfying certain criteria an employer is entitled to claim the cost of the party or function as a tax deductible expense without any liability crystallising on their employees.
The conditions are: –
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the total cost of the function must not exceed £150 per person attending;
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the function must be open to all employees (or all employees at a specific site or office location); and
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an actual function of some kind must take place.
An employer need not restrict the function to employees only. At the discretion of the employer, employees may bring guests, such as partners or spouses for example. Where guests do attend, they are included for purpose of ensuring the cost of the function does not exceed the £150 per person attending limit. Should the cost exceed £150, the whole amount will be treated as a Benefit in Kind, but this can be simply avoided by way of the employee /attendees contributing to keep the total within the allowable limit.
An employer may be a multi-national PLC or a one person Limited Company. Where an employer is self-employed then the allowance is not available for the proprietor or partners, but is available for their employees.
An actual function must take place. If instead of arranging a Christmas party an employer provided each of their employees with a Christmas gift such as a hamper for example, a benefit in kind would be crystallised on each employee for the value of the gift.
The function does not have to take place at or near Christmas. If so desired, a function may be arranged at another time entirely. Furthermore, the rules do not stipulate that there be only one function per year. An employer could still arrange a Christmas celebration with their partner or spouse and perhaps have a separate function at another time in respect of a business related event, such as the company year end to celebrate a successful year. Of course the total cost per person over the tax year must not exceed £150 in order to be wholly deductible.
Be warned, however, where the sole employee are a Director and their spouse, HMRC may try to deny tax relief for the company on the basis that the expenditure is not incurred “wholly and exclusively for the purposes of the trade”. We think they would be wrong but it is worth be aware of this.