Background
This year will represent a return, for the first time since Covid, of our traditional staff Christmas party and as the Christmas season begins to get into full swing we thought it would be useful to remind businesses that it is not just about getting the drinks, food and music right!
There are certain criteria to be met to ensure that employees do not suffer a unwelcome taxable employment benefit as a result of a party.
Detail
Rules allow employers to spend up to £150 per head (including VAT) on an annual function, or functions, such as a Christmas party without creating a taxable employment benefit for their employees or their business.
In order for a staff social event to qualify for exemption it must satisfy the following conditions:
- The event must be held annually, e.g. a Christmas or summer party;
- It must be open to all employees generally – or all staff at a location, if the employer has more than one location;
- The total cost of the event including VAT, travel and accommodation, if these are provided to enable the employees to attend, is no more than £150 per head.
It is important to note that the £150 exemption is a limit, and not an allowance, so if the cost of an event exceeds the limit it is taxable in full. Where two or more annual functions are provided, as long as the combined cost of the events does not exceed £150 per ahead, then they are all exempt. If however the total cost does go above £150, then whichever event best utilises the £150 can be treated as exempt, and others are then taxable in full.
If an employee is able to take along their partner to a staff function, then the £150 limit is not a per couple amount but applies to each individual separately, and so effectively the employee and their partner have a combined £300 exemption.
An employer can also put on separate parties for different departments in the business, provided that all employees can attend one of these parties.
The event must be primarily for entertaining staff, and must not just be for directors, unless all your staff are directors.
Employers can still choose whether to hold an online staff party, or hold one in person, without triggering an unwelcome tax bill as long as the above conditions are met
Where an annual function is provided virtually using IT then the rules on exemption will also apply provided all other conditions are also satisfied. Many business held ‘virtual’ parties such as quizzes, food tastings, cooking lessons or ‘live’ entertainment during Covid. The cost of these parties including any ‘party boxes’ containing food, drink and other favours will continue to qualify as a tax-free benefit subject to satisfying all the above criteria.
The benefits for the business are that the cost of the whole staff party is an allowable expense for tax purposes and for a VAT registered business the VAT can be reclaimed, although this may be restricted where customers are also entertained.
If you would like further information on tax relief for staff parties, or on any of the points raised above, please contact our Tax Director, Jenny Marks.
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