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Christmas party allowance

As Christmas approaches thoughts turns to office parties. So what view does the tax man take when an employer arranges a Christmas party for their staff?

Well, subject to meeting certain conditions the employer will be entitled to claim the cost of the function as a tax deductible expense without any liability crystallising on his employees.

The conditions are:

(i) the total cost of the function must not exceed £150 per person attending;

(ii) the function must be open to all employees (or all employees at a particular location); and

(iii) a function of some kind must actually take place.

The employer does not have to restrict the function to employees only and so at the discretion of the employer, employees may bring guests. Where guests do attend, they are included in making sure that the cost of the function does not exceed £150 per person attending.

An employer may be a multi-national PLC or a one person limited company such as a freelancer consultant.

A function must actually take place, so if instead of organising a Christmas party an employer provided his employees with Christmas hampers, a benefit in kind would crystallise on his employees.

The function does not have to take place at or near Christmas. So if he so desired, a freelance contractor could organise a function for himself and his spouse (as a guest) at his contract renewal. Nor does there only have to be one function a year. So the contractor referred to above could celebrate Christmas with his spouse and contract renewal with a fellow I.T. contractor. Provided of course that the total cost per person over the tax year does not exceed £150.

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