Date posted: 9th Aug 2023
Employers may meet the cost of certain social events for staff without creating a tax liability.
This used to be a concession but is now a statutory exemption provided certain conditions apply.
The exemption applies to an “annual party or similar function” provided it is available to all employees or available generally to those at a particular location. During the Covid-19 pandemic HMRC confirmed that a ‘function’ could include a virtual party, where employers were unable to host a traditional party at which employees would have been physically present.
A key condition is that the cost per head of the party or function must not exceed £150, inclusive of VAT. If an event costs more than £150 then it is taxable in full, not just on the excess over £150.
If you have already held a Christmas Party for staff it may be possible have another event, and for that to also be exempt from tax, provided the combined cost per head is no more than £150 (inc VAT) a year.
If the combined cost exceeds £150 for the year the employer can designate which ones should be taken into account to make best use of the exemption. If, for example, the cost per head of the Christmas party was £100, and the Summer event was £70 the employer can nominate the Christmas party to be covered by the exemption, but the £70 Summer Event would be taxable (not just the excess £20)
Rather than the employee being taxed on the £70 (that would be unpopular) the employer can deal with the tax and national insurance on the employees’ behalf by way of a PAYE settlement agreement.
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