Christmas parties and tax implications

With fewer than 12 weeks until Christmas, many businesses are already making plans for how they will celebrate with their employees. But how many businesses think through the potential tax implications first?

Your business is entitled to spend up to £150 per head each financial year on entertaining employees without any tax implications. However, such events need to be open to all employees or they become a taxable benefit that needs to be declared on form P11D and attract class 1A National Insurance contributions for the whole sum. There are further complications if you have already spent money on entertaining employees earlier in the year too, like a summer picnic or similar.

Your business should also note that you cannot claim business expenses for non-employees who are not guests of your business. The partners of employees can be claimed for, but subcontractors and employees of other businesses cannot. Any Christmas party expenditures made for non-employees cannot be claimed as a business expense.

For micro-businesses, the issue is much more clean-cut. Sole traders and partners in a Limited Liability Partnership cannot claim back Christmas party expenses because they are in effect entertaining themselves. Remember – only employees are eligible for entertainment deductions.

If you have yet to arrange your Christmas party, or have any concerns about the tax implications, you should speak to your accountant as soon as possible.