Christmas parties and events for staff – taxable benefits
If you provide any staff entertainment for your employees, a taxable benefit may arise on that provision. Staff entertainment can be any function, event, party or meal which you provide to your employees, of which there may be a few during the festive season!
An exemption from tax is provided to employees where you provide them with a social function and a number of conditions are met:
- The function should be an annual party
- The event should be available to all employees in your business, or all employees at one location where the employer has multiple locations
- The cost of the event should not exceed £150 per head
The qualifying cost is £150 per person attending the event. The total cost includes all of the costs associated with the function, such as transport, food, drinks, accommodation and the VAT. The total amount is divided by the total number of people attending in order to calculate the cost per person.
Your employees are entitled to bring guests. There is no statutory limit on the number of guests that each employee can bring. However, most employers limit the number of guests for cost purposes. When calculating the cost per person, you divide the total overall cost by the total number of attendees, not just the total number of employees.
If the amount falls outside of the exemption, then your employee’s taxable benefit is the cost per person for both the employee and his/her guests. The total amount of this cost is then the taxable benefit to your employee, not just the amount above the £150 exemption.
If you hold more than one event, then there is no taxable benefit if the aggregate of the events is less than the £150 annual exemption. If the two events exceed the £150 exemption, then a taxable benefit arises in respect of one of the two events. The £150 amount is not an allowance to be netted off the total costs.
If costs are not covered in entirety then the full amount is taxable, i.e.:
- The £150 exemption can be used against the event which is most beneficial from a tax perspective
- A taxable benefit arises on the whole value of the second or subsequent events
If you hold a social event just for selected employees, the annual parties’ exemption does not apply.
Please see below for some examples.
1.One annual party
You hold an annual Christmas party for all staff based at your office. The event costs £9,000 (including VAT) and 75 people attend, making the costs per head £120. If you hold no other events during the tax year, there are no tax or NIC implications for any of the employees arising from their attendance. This is because the total cost to you divided by the number of attendees is under £150, therefore the provision of the event is exempt.
2. More than one party in the year
You hold a Christmas party and summer BBQ each year for all of your workers. The cost per head of the Christmas party is £115 and for the summer BBQ, the cost is £65.
As the combined total per head of both parties is more than the £150 limit, the exemption can only apply to one party. It is open to you to choose which party should be treated as exempt. As most employees attended both parties, it makes sense to select the more expensive Christmas party to come within the exemption. The cost of the provision of the summer BBQ, £65 per head, is therefore taxable as a benefit on all employees. This is the case even for those employees who attended the summer BBQ but not the Christmas party.
3. Employees bring guests
If, in Example 2, some of the employees brought guests to the summer BBQ, the position would be as follows:
- In working out whether the exemption can apply to either party, the cost is per person, not per employee. If the summer BBQ costs £6,500 and 80 employees attended along with 20 guests, the cost remains £65 per head
- You can still choose which party to exempt
- The benefit chargeable on each employee in respect of parties outside the exemption is the total cost for himself and his guests
This may change your decision as to which event to bring within the exemption. If no employees brought guests to the Christmas party, but most people brought one guest to the summer BBQ, applying the exemption to the Christmas party would save most employees a £115 benefit charge. However, applying it to the summer BBQ would save most employees a £130 benefit charge.
If your employees are required to entertain clients as part of their jobs, then no taxable benefit arises on those individuals when they are at events to entertain clients. However, if staff are sent to an event purely as a perk, then the cost of the event is taxable on them.
Staff entertained by third parties
There is generally no taxable benefit arising on your employees where they are entertained by third parties and there is no element of reward in respect of the employee’s past or future services. However, if there is an element of reward within the third party’s provision, there may be tax and reporting consequences.
If you have any questions regarding the tax implications of staff entertainment, please contact Clair Williams (email@example.com) or Rachael Matthewson (firstname.lastname@example.org) via email or call 0191 285 0321.