Deck the Halls for Your Tax-Free Christmas Party

3rd November 2014

With the festive season fast approaching, ICAEW reminds employers that there's no need to be a scrooge - staff Christmas parties can be tax-free - thanks to HMRC's seasonal gift. This rare gift from the taxman allows businesses to spend a tax-free amount of up to £150 per member of staff each year.

Anita Monteith, ICAEW Tax Faculty Technical Manager, explains: 'After a busy year of work, what better way to reward your employees than with a chance to let their hair down? A Christmas party can be an excellent way of boosting staff morale as days get shorter, and can make employees feel valued for their hard work, as well as encouraging productivity. Christmas and gifts from the taxman come but once a year - make sure you take advantage.'

The rules apply to any party or similar function, which must be open to staff generally or to workers at a particular location. The tax-free limit applies for a tax year, so an employer can put on both a summer party and a Christmas dinner as long as the total cost for both is less than £150 a head.

However, if you spend as much as one penny over this limit, the full amount spent will become liable to income tax and National Insurance for both staff and employer alike.

The £150 limit includes a whole host of items such as accommodation and transport, not only food and drink. What's more, as long as the cost per head stays under the limit, employees can bring their significant others along. Businesses of all sizes are welcome to take advantage of HMRC's gift and will also get tax relief on the total costs.

Unfortunately, bosses wishing to make Christmas gifts to employees should remember that these are taxable. Cash presents, such as Christmas bonuses or vouchers redeemable for cash, also have to have tax and National Insurance contributions paid through the PAYE system. Alternatively, employers wishing to give staff a present, whether cash, vouchers or something more tangible, but without a tax charge attached, have the option to pick up the tax bill on behalf of their employees by setting up a PAYE Settlement Agreement with their tax office.

For further information please see www.hmrc.gov.uk or speak to an ICAEW Chartered Accountant.