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November 22nd 2016 / BY: Wisteria

Tax Efficient Party Planning

“‘Tis the season to be jolly” so the saying goes where we thank our staff for the hard work they have put in throughout the year with a Christmas party. But if you don’t plan appropriately the tax man can be a real party pooper.

If you plan appropriately then HMRC actually give a generous exemption for staff parties. To be exempt from paying tax and national insurance contributions on your Christmas party or staff event then the function must be:

  • £150 (inclusive of VAT) or less per head,
  • An annual function e.g. Christmas party or summer barbecue
  • Open to all employees.

Other points to note is that if you hold multiple events throughout the year as long as the combined cost is no more than £150 per head then it is exempt.
If the company has more than one office then an annual event that’s open to all of your staff based at one office still counts as exempt. Parties for different departments can be held, as long as all employees can attend one of them.

To work out the cost per head then cost means the cost of the function inclusive of VAT, transport and/or overnight accommodation if provided to enable the employees to attend. Divide this total by the number of people attending to arrive at the cost per head.
The following examples make this clearer

Example 1

Company A holds an annual Christmas party for all its staff. The average cost per employee is £50. This is exempt.
In addition the directors of Company A hold a Christmas party for the directors only where the cost per head is £100. This function is not covered by the exemption because it is not available to all staff.

Example 2

Company B holds a summer barbecue open to all its employees. The cost per head was £100.
It then holds a Christmas party open to all its employees. The cost per head was £80.
As the total cost per head for both is £180 they cannot both qualify for exemption. As the cost per head of each party on its own was not more than £150, either event can qualify for the exemption on its own but it is more beneficial overall for the summer barbecue to be exempted. So the benefits arising from that function will not be chargeable and those arising from the second function will be chargeable.
For employees who attended:

  • both events, they will be chargeable only on the benefit of £80 for the Christmas party
  • only the Christmas party, 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.

Don’t let HMRC spoil the party and speak to your party planning experts at Wisteria.

If you would like one of Wisteria’s dedicated tax specialists to help you ensure your company’s annual Christmas party is not ruined by the taxman, then please contact them on 020 8429 9245 or email info@wisteria.co.uk.