Organising a Christmas Party? Make sure it doesn’t come with a tax hangover!

With the Christmas party season well underway, business owners planning to host staff parties need to keep a close eye on costs to avoid extra tax and national insurance (NIC) payments, reminds ACCA (the Association of Chartered Certified Accountants).

Chas Roy-Chowdhury, Head of Taxation at ACCA, says: “Taking note of Inland Revenue rules now will prevent a New Year tax hangover.

“For a Christmas party to be tax-free, it must be open to all staff and only up to £150 can be spent on each employee. But here’s the Scrooge-like warning - one penny over this limit and the full amount spent will become liable to income tax and NIC payments. In addition, employers who pay for more than one event during the year have to calculate the combined costs of all the events. If the combined total is over £150 per head, then tax liabilities will arise. Employers should therefore establish which events will bring the biggest tax savings.”

The £150 limit includes all costs associated with the event, such as entertainment, accommodation, venue, transport – including hired coaches or taxis home and VAT. Employees can take their spouses, family and friends, and each guest will have a £150 exemption. However, employers cannot claim back any VAT incurred.