Time to let your hair down? Enjoy a festive moment or two with your business colleagues and staff? If you are careful with your budgeting, you can enjoy the event without increasing your tax or National Insurance payments. Here’s what you need to consider:
What's exempt?
You might not have to report anything to HMRC or pay tax and National Insurance. To be exempt, the party or similar social function must all of the following criteria:
- The cost must be £150 or less per head.
- The event must be an annual event, such as a Christmas party or summer barbecue.
- The event must be open to all your employees.
If your business has more than one location, an annual event that’s open to all of your staff based at one location still counts as exempt. You can also have separate parties for different departments, as long as all of your employees can attend one of them.
As long as the combined cost of the events is no more than £150 per head, they are still exempt.
You do have to report how much social functions and parties are worth to each employee if they are a part of a formal salary sacrifice arrangement.
A few additional considerations
- The cost of the function includes VAT and the cost of transport and/or overnight accommodation if these are provided to enable employees to attend. Divide the total cost of each function by the total number of people (including non-employees) who attend in order to arrive at the cost per head.
- The figure of £150 is not an allowance. For functions that are outside the scope of the exemption directors and employees are chargeable on the full cost per head, not just the excess over £150, in respect of: themselves and any members of their family and household who attend as guests.
- If the employer provides two or more annual parties or functions, no charge arises in respect of the party, or parties, where the cost(s) per head do not exceed £150 in aggregate. Where there is more than one annual function potentially within the exemption, HMRC do not expect employers to keep a cumulative record, employee by employee, of functions attended. But 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 others taxable.
If you need help organising your annual celebration in the most tax effective way, please call.