Accounting for Christmas
The festive period is upon us and once again employers all over the country will have organised Christmas parties and events to celebrate the season. The good news is that there are recoverable costs for these events – so long as no one gets too carried away!
How much can I spend?
When organizing a staff party, the most important figure to keep in mind is the annual tax-free exemption of £150 per head. If you end up spending even a few pence over this number then not only is the amount you have exceeded the limit by taxable, but the whole cost will become a taxable benefit in kind!
This £150 limit means the total expenditure per head, which would include food, drinks, activities and any accommodation required. Sticking to the limit will also mean that any input VAT incurred on the cost will be claimable on your next VAT Return, so keep your receipts!
Who can come along?
This benefit extends only to employees and must be open to all staff to be eligible. Any clients or employee’s partners that are out on the town with you will need to be treated under the normal rules for entertainment, so any expenditure extending to them won’t be deductible against corporation tax. It’s worth noting that any events held only for directors or partners of the business will fall under the same entertainment rules and therefore won’t be eligible for the tax-free exemption.
What about gifts & bonuses?
If you decide to reward your employees with a gift at Christmas, the total cost of the gift should not exceed £50 per annum or it will need to be reported as a taxable benefit through a P11D form. Likewise, if an employee receives any gifts from clients then these must not exceed a total of £250 or will also need reporting as a benefit-in-kind.
Another common practice for employers around this time of year is to reward their employees with a Christmas bonus - usually in the form of either cash or voucher. If you plan to do this, remember these count as taxable income and will incur both income tax and national insurance.
However your business chooses to celebrate the season, there are certainly a few reasonable options available to help you make the most of it. If you do have any questions or need some further guidance, please feel free to get in touch.