Are Christmas Party Expenses Tax Deductible in the UK?

Santa walking through a dark office shining a torch while delivering presents.

With the holiday season now upon us, employers are putting the final plans in place for their annual Christmas party and staff bonuses. These festivities might be fun, but they can be costly to small business owners. Therefore, you might be wondering: are Christmas party expenses tax deductible and do you pay tax on a Christmas bonus?

Thankfully, we’ve put together this concise guide to help you answer these two common questions in regard to the UK law. You can then get back to celebrating the silly season in style!

Are Christmas Party Expenses Tax Deductible?

The short answer to this question is yes, Christmas party expenses are tax deductible in the UK. However, there are certain conditions which must be met.

According to UK law, for your Christmas party to qualify as a tax-free benefit, it must:

  • be open to all your employees
  • be an annual event
  • cost £150 or less per person

Not only do these conditions apply to in-person parties, but online or virtual events too.

So, what exactly do these conditions mean? They may sound straight-forward, but there’s a little more to keep in mind for your festivities.

The total cost must not exceed £150 per person, including food and drink, transport, accommodation, etc. If your total comes to £150.01 per attendee, you’ve exceeded the threshold and won’t be eligible for tax deductions.

To calculate the cost per person, you should divide the total cost of your event by the number of people who attended, including any guests such as spouses.

This amount isn’t just applicable to your Christmas party either, but is a total figure for all events held throughout the tax year that you wish to claim on.

If you hold an annual Summer BBQ for all of your employees, for example, along with the end-of-year Christmas party, then the tax-free quota reduces to £75 per person at each of these events.

If you run a large company split across multiple locations, you may be wondering if your separate Christmas parties can qualify as a tax-free benefit. An annual event that’s open to the entirety of your staff based at one location still counts as exempt. You can also put on separate parties for different departments, as long as all of your employees can attend one of these.

Finally, your business employees – not clients – must be the number one reason for throwing your Christmas party, otherwise you won’t be eligible for the tax deductions.

Do You Pay Tax on a Christmas Bonus?

For many employers, the end of the year is also the perfect time to show your appreciation for your staff with a Christmas bonus. Therefore, you may also be wondering if this generosity comes with any tax perks?

Christmas cash bonuses are counted as earnings, and therefore are taxed in much the same way as salary and wages. Employers must therefore add the value of the Christmas bonus to their employees’ other earnings, then deduct and pay PAYE tax and Class 1 National Insurance through their payroll.

If you give goods as Christmas gifts, however, then different rules apply. Christmas gifts aren’t usually deemed a ‘trivial benefit’ that’s excluded from tax rules – i.e., one which is small and connected to an employee’s welfare.

Therefore, if you reward your staff at Christmas with goods instead of cash, you must pay class 1A national insurance on the value of the bonus and report it on form P11D, which deals with expenses and benefits.

Get in touch today to learn how our cloud-based expense management software can help you stay on top of your Christmas expense allowances.

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