Matt Lewis, EMEA Compliance Director, Concur

Matt Lewis
Matt Lewis

Christmas parties are the perfect way for a business to end the year in festive celebration. But if you’re caught unaware, the gift of a Christmas party could soon turn to coal, as hidden tax costs can add to an already costly bill. Matt Lewis, EMEA Compliance Director at leading travel, expenses and invoice solutions provider Concur provides five key tips to preventing your festivities from turning as sour as the leftover eggnog.

The Christmas party season, as jolly as it is, can often be a bone of contention. Not only does the Christmas quiz cause heated debate, but so too does the issue of how much a company should spend on the end of year blow out. A glamorous Christmas party provides employees with bragging rights across the turkey roast, and if they feel they have been let down by their employer, they will not hesitate to raise the issue with management.

However, despite the pressure, businesses must be wary. Although the temptation to cave in to employees is high, companies can expect severe consequences from HMRC if they exceed the £150 permissible allowance per employee per year for staff events.

The festive celebration could be a lot more costly than expected

The rules are fairly simple, a company can celebrate in any which way they desire, as long as the food and drink bill comes to less than £150 per person. If a business keeps to this rule, then they can expect to be on HMRC’s nice list. But, stray above this amount and a company can soon find themselves labelled as naughty as any costs exceeding the allotted allowance becomes a taxable benefit on the employee.

In theory, any extra expenses, such as train fares or hotel rooms should go on an employee’s annual tax return, or P11D. But regardless of how glamorous a company makes their party, few employees would attend if they knew this was the case. So, most companies put it on their PAYE Settlement Agreement instead, and take on the costs.

What happens if costs exceed the £150 limit?

If an employee falls in to the 40 per cent tax rate bracket, going over the £150 limit – even by just a pound – could cost the company approximately 90 per cent more; meaning one miscalculation could double the entire initial outlay. In layman’s terms, a £200 Christmas party, including VAT, could in total cost your company £380. A nasty surprise for an unprepared business.

So, how can you avoid unwanted costs spoiling your Christmas this year? Here are a few tips:

Top tips to keep HMRC happy when it comes to Christmas parties

Promote staff solidarity

Separating teams for individual Christmas parties in an attempt to claim them under the £150 allowance may seem a good idea, but it is a strict no-no under tax rules. However, one single party involving all employees is far more in tune with the spirit of Christmas. And, what may appear simply as merry friendship could produce valuable business relationships which could benefit the business in the New Year.

Be careful when giving ‘gifts’

Although that Amazon splurge before Christmas seemed a good idea to keep staff morale high, you must keep in mind that there’s a £50 limit on employee gift allowances per year outside of the £150 allowance.  Still feel free to give a well deserved gift this Christmas – just be sure to keep track of those throughout the year too!

Make a list, check it twice

When planning your festivities it is all too easy to get carried away, but be careful, as the little costs often add up. With this in mind, keep track of all employee expenses and make sure all costs are relayed back to you – as it is these that could put your spending over the limit.

Keep your generosity in check

At the height of the festive frenzy, you may feel the urge to send a generous thank-you gift to HMRC. Although sent with good intentions, HMRC is extremely strict regarding benefits to employees, and must be stringent in applying the same principle to itself. So, no matter how expensive, loving or humorous – they cannot accept any form of gift.

Mistletoe and water

At some point in the night, when Jane from Accounting has ordered the ninth round of margaritas – you may have to act as the voice of reason and – against all protests – close the bar. Whilst this may be an extremely unpopular decision, it is an important one to keep the tax man at bay.

A simple solution

There’s no need to add to the January blues, and a financial hangover is easily avoided. The Christmas party should spread cheer not dread and like the rest of the year, the easiest way to keep the tax man happy is to adopt expense management software, which can make your business more compliant and gift you the ultimate luxury: time.

As an additional benefit, it could even reduce your employees’ frustration at expenses time, and if all goes well the finance team can treat themselves to that second glass of mulled wine… or fourth.