Tax Free Christmas Parties

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With Christmas fast approaching you may be thinking of organising a party for your employees. But did you know there is a reasonably generous tax exemption for employee functions?

Employees and their guests are not taxed on benefits where the annual costs of a party, outing or other function provided by the company does not exceed £150 per head, inclusive of all expenses such as accommodation, travel and VAT. If the event is even a penny over the whole amount becomes liable for tax.

As an employer, you have certain National Insurance and reporting obligations when you organise a social function for your staff.

Take a read to find out what’s involved and how you can become eligible.

What’s Included?

What you need to report depends on:

  • Whether it’s an annual event
  • If it is open to all your employees (in each location if you have several branches or locations)
  • If it costs more than £150 per head, per year including all expenses
  • How many events you provide over the tax year
  • Whether the employee is a director and how much they earn

What’s Exempt?

To be exempt from reporting anything to the HMRC or pay any tax or National Insurance the following conditions must apply:

  • The overall cost including expenses is £150 or less per head
  • Annual, such as Christmas party or summer barbecue
  • Open to all employees (including cleaners or security staff)

Multiple Locations and Departments

If you have a business with more than one location, as long as the event is open to all employees based at that location the exemption still counts.

You can also hold separate parties for different departments. Again as long as the event is open for all staff to attend.

Multiple Annual Events

You can run multiple annual events and still receive exemption if the total of the events does not exceed £150 per head and is open to all employees.

If you do run more than one annual event the exemption can be used to offset the most expensive event.

For Example

  • Summer Barbecue cost  –  £75
  • Christmas Party cost       –  £110

The allowance would be used against the Christmas party, and the staff taxed on the £75 Summer Barbecue as a benefit in kind.

How Is the Cost Calculated?

To calculate the cost per head, HMRC suggests that you take the total costs for the event including travel, accommodation and VAT, and divide it by the number of attendees (including guests) to ascertain the cost per head.

So why not go ahead and book your Christmas party for you and all your staff, it’s a great morale booster and helps build team spirit!

With this in mind, and for those who are still considering their options, Laura shares seven trends to think about when planning you 2021 Christmas party.