The staff Christmas Party is a time for fun. However, if you are an employer and hold an annual Christmas Party, you need to be aware of restrictions, otherwise you may end up with an unexpected tax bill.
Provided that an annual Christmas party is open to all staff generally, HM Revenue & Customs (HMRC) will treat expenditure of up to £150 per head per annum as tax free. The expenditure of £150 per head means the total cost of the function, including VAT and any transport or accommodation provided by employer, divided by the number of people attending. If the cost rises to more than £150 per head, HMRC shall claim the full amount of tax for the benefit divided among the relevant employees.
This treatment applies to Christmas parties or other annual functions, but only if the function is open to ALL staff. If, for example, you were to hold a Christmas party solely for directors, the benefit would be taxed, regardless of the cost per head.
You can claim the concession on more than one party/event, which could include summer barbecues or spa days, but providing that the total cost per head of all parties does not come to more than £150. If that is the case, then each function will be looked at and the most beneficial function with a cost per head of less than £150 will be exempt.
See here for more details.
