Staff Christmas parties can be tax-free under rules which allow businesses to spend an annual tax-free amount of up to £150 per staff member on entertainment.
The rules apply to any annual party or similar function, which must be open to staff generally or to workers at a particular location.
The tax-free limit applies for a tax year, so if the employer puts on a summer party and a Christmas dinner together costing less than £150 a head, both will be tax-free for employees.
The range of items that must be included within the £150 limit goes beyond food and drink, and includes relevant accommodation and transport home if the employer pays for these. Furthermore, employees can bring along their spouse or partner as long as the cost per head stays under the limit.
Thankfully, the employer will also get tax relief on the total costs against business profits.
Employers who exceed the £150 per head maximum on annual events for staff have the option to apply to HMRC to enter a PAYE Settlement Agreement (PSA), which allows the employer to cover the tax and National Insurance Contributions which the employee would otherwise have to pay.
Without the PSA, employees would be landed with a tax bill when the £150 threshold is crossed.