Does your organisation have an annual Christmas party for staff?
The tax rules also allow other staff parties which are a tax-free benefit if certain conditions are satisfied.
The exemption applies to an annual party (for example, a Christmas party), or similar annual function (for example, a summer barbecue). It must be provided for employees and is available to all employees or available to all employees at that location, where the employer has more than one location. If the employer provides two or more annual parties or functions, no tax charge arises in respect of the party, or parties, for which cost(s) per head do not exceed £150 in aggregate. For each function the cost per head should be calculated. The cost per head of subsequent functions should be added. If the total cost per head goes over £150 then whichever functions best utilise the £150 are exempt, the other is taxable.
Below is an example from HMRc’s website..
A company holds two annual dinner dances open to all its employees in the tax year. The total cost of the first, including transport and accommodation provided for certain guests, was £10,000 including VAT. The total number of persons attending was 100 and the cost per head was therefore £100.
The second dinner dance cost £8,000 including VAT, and 100 people attended this. The average cost was therefore £80.
The total cost per head for both functions was £180 so they cannot both qualify for exemption under Section 264(3) ITEPA 2003 (see EIM21690).
Since the cost per head of each party on its own was not more than £150, either event can qualify for exemption on its own. However, it is more beneficial overall for the first to be exempted. So the benefits arising from that function will not be charged. Those arising from the second function will be charged.
For employees who attended:
- both events, they will be chargeable only on the benefit of £80 for the second event
- only the first event, there will be no chargeable benefit because that event is exempt
- only the second event, they will be chargeable on the benefit of £80.
If the average cost per head of each of the functions exceeded £150 the full amount of the benefit of both functions would be chargeable. The £150 is not an allowance to be set against an amount that exceeds that figure.
If this is the case and you don’t want your employees to suffer tax for it you can agree to enter into a PAYE settlement agreement.
For more Guidance on what is a TAX-FREE BENEFIT , exemptions and technical information visit Gov.uk’s page on this topic: Expenses and benefits: social functions and parties