Date posted: 17th Oct 2023
As we approach the festive season, many employees will be looking forward to their Christmas party.
However, it is becoming more common for employers to host a summer party and many more staff events, to retain staff in a very competitive market and this may have some tax implications.
There is a tax exemption for annual functions. This is not only for the Christmas party but it can be used for other events during the year. However, each event must be annual – so will happen in the following year. The exemption does not apply to a retirement function of the MD or the 25th anniversary of the business.
In addition, the event must be open to all employees. If employees are based at different locations, then the event must be open to all employees of that location.
As long as the total cost is less than £150 per head (importantly including the VAT element), then there are no tax implications for the employee.
If the cost of two or more events is less than £150 per head (inc VAT), then again, there will be no tax implications for the employee.
However, there is a nuance that can have an impact if one annual event costs £100 (including VAT) per head and another annual event costs £55 (including VAT) per head. You may incorrectly assume that only the excess of £5 (including VAT) is subject to tax on the employee………
If the total cost of both events exceeds £150 per head, then only one of the events will qualify for the exemption. The whole cost of the other event will be a taxable benefit on the employees. In the above example, the employer would likely choose the £55 event to be the amount taxable on the employee.
Given that you have put on the event to entertain staff, they may feel a little aggrieved at the requirement to pay tax on a staff party. Therefore, any tax can be settled by the employer by agreeing a PAYE settlement agreement with HMRC, thus avoiding the employee being required to personally pay any tax.
It is important to remember that the cost of the function includes transport and accommodation, if this is provided by the employer. However, the total costs of the event can be split equally between the total number of attendees (spouses etc) to arrive at the cost per person.
As ever, if you need any PAYE advice, please give us a call.
