In a recent newsletter we looked at the tax implications of giving Christmas gifts to your staff and the complications that can arise. In this newsletter, we will take a look at the tax breaks available for staff Christmas party or similar annual events.In general, the cost of a staff party or other annual entertainment is allowed as a deduction for tax purposes. However, there are some important criteria that must be followed to ensure that there will be no taxable benefit charged to employees.An annual Christmas party or other annual event offered to staff generally is not taxable on those attending provided that the average cost per head of the function does not exceed £150.The event must be open to all employees. If a business has multiple locations then a party open to all staff at one of the locations is allowable. You can also have separate parties for separate departments but employees must be able to attend one of the events. There can be more than one annual event. If the total cost of these parties is under £150 per head then there is no chargeable benefit. However, if the total cost per head goes over £150 then whichever functions best utilise the £150 are exempt and the others taxable. Note, the £150 is not an allowance and any costs over £150 per head are taxable on the full cost per head.All costs including VAT must be taken into account. This includes the costs of transport to and from the event, food and drink and any accommodation provided.Planning noteAny VAT incurred on Christmas parties for staff can be recovered subject to the usual rules. If staff partners/spouses or clients are also invited to the event the input tax has to be apportioned, as the VAT applicable to non-staff is not recoverable. However, if non-staff attendees make a contribution to the event, all the VAT can be reclaimed and of course output tax should be accounted for on the amount of the contribution.So, as the holiday season approaches, it’s fun to plan a party, but worthwhile to pay attention to the tax rules to ensure that your party does not create hidden tax costs for your employees.