As party season approaches, mind your taxes

As you celebrate the festive season, don’t get caught out on the tax rules for staff entertaining.

A Christmas party or other annual event for employees won’t give rise to a benefit in kind for the employee, provided the function is open to staff generally and costs do not exceed £150 per head (including VAT). In calculating costs, you must include not only the event itself, but also any transport or accommodation provided for those attending. This total is then simply divided by the number of attendees, including non-employees, to find the cost per head. If this is over £150, the whole amount and not just the excess is taxable on the employee.

While typically there will only be one ‘big event’ for employees per year, the £150 threshold applies across all staff functions throughout the year. The cost-per-head exercise needs to be done for each event, and if the cumulative total exceeds the £150 limit, a taxable benefit in kind will arise.

For example, if there are two staff events a year, a Christmas party and a summer dance, costing £120 and £70 per head respectively, both parties are below the £150 limit, but the aggregate costs exceed it. One function will be exempt and one will be taxable. It would clearly be advantageous to allocate the exemption to the Christmas party – the higher value event. For employees who attended both events, a benefit in kind of £70 arises. For those attending only the Christmas party, there is no benefit in kind. Employees who attended only the summer dance are still taxed on £70.

Contact a member of our UK team for advice on this issue.

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Contact a member of our UK team