Keeping the Christmas party tax-free
The Covid-19 outbreak and national lockdown last year forced the cancellation of all Christmas parties (except virtual ones). They could be tempting this year to make up for a lost time. How can you enjoy the holiday season without incurring a tax liability? Here some points described by certified accountants in Slough for your needs.
Limited Tax Exemption
There is a limited tax exemption for yearly parties and functions that can be utilized to ensure that no gain in kind tax charge is incurred when the Christmas party is provided. There are, however, restrictions that must be satisfied, as with other exemptions. Virtual parties and real-life' gatherings are both excluded from the exception.
The function must be annual
Only yearly gatherings are free from the exemption. The exemption will be granted if you have a Christmas party every year (Covid-19 limits apart). If you opt to conduct a one-time event, however, the advantage you get will be taxed.
Per Head Limit
The exemption is only applicable if the function costs less than £150 per person. This is calculated by dividing the entire cost of the function (including VAT) by the number of individuals who will attend (guests as well as employees). If the cost per person exceeds £150, the entire amount is taxed, not just the excess. If an employee brings a visitor, the taxable benefit is the cost of both the employee's and their guest's participation at the event.
If you have more than one yearly function each year, you can save money by sticking to the £150 per head limit. It's important to remember that it's just for 'complete' functions and isn't a tax-free allowance. When determining how to make the most use of the exemption, consider the influence that visitors will have on the amount that would be taxed if the exemption were not available. The exemption is more suited to a £30 per head event where the employee can bring a guest rather than a £40 per head event where the employee is the only one there.
If the exemption is not applicable, the taxable total for both the employee and their visitor is £60 (2 x £30), but for the latter, it is just £40.
Taxable benefit? Use a PSA
If you are unable to take advantage of the exemption for your Christmas party but still want to maintain employee goodwill, you may be able to cover the tax burden by including the benefit in a PAYE Settlement Agreement.