Staff parties – a taxable benefit?
It’s that time of year again when everyone puts on their party hat for the annual Christmas party. One thing to remember, apart from to have fun, is how the cost is treated.
Employers can use an allowance of up to £150 per employee per year for hosting events such as the Christmas party. The guidance from HMRC states that it should be all of the following to be included:
- £150 or less per person
- An annual event (Christmas/summer party)
- Open to all employees
If an employer likes to host multiple events, the £150 can be used across them as long as the combined figure is £150 or less and meets the above criteria.
An employer can still use the allowance if they have more than one location so long as all employees can attend one of the events.
If an employer wishes to spend more than the £150 or the event isn’t covered by the exemption, there are some reporting requirements and National Insurance to pay.
The cost should be reported on form P11D for the employees attending and Class 1A National Insurance paid on the full cost of the event.
Example for multiple events – EIM21691
The example used in the Employment Income Manual states:
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 but it is more beneficial overall for the first to be exempted. So the benefits arising from that function will not be charged and 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.