The Taxman allows a business to spend up to £150 (including VAT) per employee on an annual Christmas party without employees being taxed on it! If spouses attend, the Taxman says they can also have a £150 allowance. However, there are a few things to watch out for if you want to maximise the benefit of this allowance:

  1. The £150 per employee covers not just the Christmas party but also any transport and accommodation costs. So, if the budget allows and you are feeling generous you could also provide your employees with an overnight stay! I wonder how many of you will do that!
  2. If the cost per employee is just 1p over the limit, then unfortunately the whole cost becomes a taxable benefit on the employee. However, if the employee suffers the excess over £150, then that is OK!
  3. This allowance isn’t just applicable to Christmas parties,it also applies to any event open to all staff throughout the year! Therefore,you can have a Christmas party, a summer BBQ party, etc and as long as the total cost doesn’t exceed £150/employee for the year then the benefit is tax-free. I’ll drink to that!
  4. The exemption doesn’t just apply to big companies with lots of employees. Even a one man company can have a function for himself and his spouse because the event would be open to all employees.
  5. You can only recover the VAT on the element relating to your employees. You cannot recover VAT on spouses’ element of the cost.

About the Author

Mark Higham

Is the Managing Partner at Numero Accountancy LLP and an ACCA qualified accountant. Having spent time working in large Plc's and Private Limited Companies in Senior Finance roles Mark start his own practice in 2005. In this time Mark has been a finalist in Doncaster Chambers Entrepreneur Year and Numero have been finalists in the Rotherham Chamber New Business Start-Up and Most Innovative Use of Technology Awards.

Posted on 21st July, 2010