As many companies deliberate over how they will celebrate Christmas this year with their employees, employer tax experts from professional services firm, Deloitte, say that changes to the tax rules could make the annual Christmas bash a particularly festive occasion.
Taxman gets into festive spirit
Tax specialist Tim Waterhouse from Deloitte in Cambridge, explains: 'In the last Budget the Chancellor announced a substantial increase in tax exemption for parties and events provided by employers, from 75 to 150 per attendee. Even though the increase was applicable from the start of the current tax year, for many companies the annual Christmas party is the main event of the year. So as Christmas approaches, it's worth bearing in mind when planning the festivities.'
Under the tax rules, there are certain conditions that must be met if employers are to avoid incurring a tax bill. The annual party or function must, for instance, be open to all staff. If staff are allowed to bring guests, each guest has their own 150 exemption. The total cost of the party, when divided by all the employees and guests attending must be below 150 per person. It should be noted that total costs include any associated accommodation or taxi costs.
If costs are below the annual 150 limit, the balance can be applied to another tax-free function, with the same conditions being met. However, if the cost per head of other events exceeds the balance available, then the whole amount for the event in question will become liable to tax and National Insurance, not just the excess.
Tim Waterhouse added: 'Given that gifts remain liable for tax, employers are increasingly starting to weigh up the benefit of throwing a more lavish annual party as opposed to giving a present to employees. Where companies have offered both in the past, they will generally now stand to gain in tax saved on the annual functions.'
In cases where events exceed 150 per head, details should be reported on the employee's form P11D, so that the employee pays the tax on the party and the employer pays National Insurance on the benefit. More usually, the company will include the cost of the party on its PAYE Settlement Agreement (PSA) and meet the tax liability on the employee's behalf. However this method can prove costly, as the cost per employee has to be increased to take into account the benefit of the company settling the employee's tax liability. Typically settling a higher rate employee's tax liability on a 100 benefit can cost the company 188. Accurate cost management of the Christmas party can therefore be very worthwhile.
In this press release references to Deloitte are references to Deloitte & Touche LLP.
Deloitte & Touche LLP is the UK's fastest growing major professional services firm based in 21 UK locations, with over 10,000 staff nationwide and fee income of 1,228 million in 2002/2003. It is a member firm of Deloitte Touche Tohmatsu, a leading professional services organisation, delivering world class audit, tax, consulting and corporate finance services, with around 120,000 people in over 140 countries. Deloitte Touche Tohmatsu is a Swiss Verein, and each of its national practices is a separate and independent legal entity.
Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.
The information contained in this press release is correct at the time of going to press.
For further information, visit our website at
The Deloitte Cambridge office comprises 8 Partners and over 250 staff who deliver a full range of professional services to the East Anglian region. As well as focussing on the life sciences and technology sectors for which the region has become so renowned, the office has long standing specialisms in other sectors including the professions, consumer business, food and agribusiness.