When you offer benefits to your employees, you may incur a tax liability on them, depending on whether they can be viewed as income by HMRC.
Substantial benefits which are either classed as income or represent a significant financial contribution to your employees may include company cars or private health insurance. These are known as benefits in kind (BIKs) and typically incur tax and National Insurance (NI) liabilities.
However, more commonly offered by employers are trivial benefits and some social functions – those benefits which are smaller ‘token’ gifts that do not represent a significant financial offering.
Staff Christmas parties are one of the most common examples of such benefits, and many employers offer them without considering tax liabilities.
It is important that you comply with certain criteria to avoid having to report your party and potentially pay tax on it.
Is it tax-exempt?
If you are planning to throw a Christmas party for your staff to show your appreciation for their hard work, you will not have to report it and pay tax on it if it:
If your business has multiple locations or departments, you are allowed to hold a separate event for each while still remaining tax-free, as long as all employees are eligible to attend at least one of them.
What if I incur tax?
If your Christmas party does not meet all of the above criteria, you may need to report it via a P11D form or through your payroll, depending on how you do employee benefit reporting.
You will then need to pay Class 1A NI on the full cost of the event – not only, for example, on the value of the event above £150 per person.
The majority of employee Christmas parties will not incur a tax liability, but you must plan ahead to keep the spirit of the season without paying more tax than you need to!
In the lead up to Christmas, if you need advice on throwing a tax-efficient Christmas party for your staff, contact our team to discuss your options.
