Are Christmas party expenses exempt from tax?

At this time of year, we’re often asked whether or not there’s any tax exemption from hosting a firm’s Christmas party. If you are a company hosting an annual festive function, or any annual do, then you may be exempt from paying tax and National Insurance (NI). HMRC advises that to qualify for exemption your event must be:

• £150 or less per head.
• Annual, for example a Christmas party.
• Open to all the firm’s employees.

And remember, if a combined cost of annual events is no more than £150 per head, they’re still exempt. Read more about this at gov.uk

If the cost of your annual event is above this or any other criteria not met, then a P11D form will need to be completed for tax and NI purposes.  

P11D form explained

P11D is a tax form which is used for recording any benefits or expenses which can’t be put through payroll.

As an employer, you must keep a record of all benefits and expenses for employees and directors, including any annual function that does not meet the criteria set out above.

At the end of each tax year a P11D form needs to be completed and submitted to HMRC for each employee who has received expenses and/or benefits. These include company cars, health insurance and childcare benefits.

HMRC will then use this information to calculate your National Insurance contributions.

Pay employee benefits through payroll

Instead of using the P11D form, you can register with HMRC (before the start of the tax year) to pay tax and employee benefits through your payroll but to do this, you would need to calculate the cash equivalent of each benefit. Please note however, that not all employee benefits can go through payroll.

The advantage of going through payroll is that you wouldn’t have to submit a P11D for each employee although you’ll still have to submit the P11D(b) form for the Class 1A NI contributions.

Chartered accountant Surrey

As chartered accountants, we can help you navigate the taxes due on benefits and expenses as well as advising on which benefits are considered tax-free with our accountancy services. Find out about our compliance services here and why not give us a call on 01883 717077 about your requirements so that we can provide you with the best options for your business.