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Enjoy your Christmas party but remember to count the cost . . .

Corporation Tax, Payroll l

 

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There is an exemption from tax, NICs and reporting if you provide a party or similar function for employees that meets the following three conditions:

  • it’s an annual event, such as a Christmas party or summer barbecue
  • the event is open to all of your employees
  • the cost per head of the event isn’t more than £150

The £150 threshold

The £150 figure isn’t an allowance that can be offset against the cost of more expensive events:

  • if any annual event you provide costs more than £150 per head, there is no exemption and the rules in the section ‘Other social functions’ apply to the full cost of the event
  • if you provide more than one annual event, with individual costs below £150 per head but with a combined cost above £150, see the section ‘If you provide two or more qualifying annual events’
  • Other social functions

Definitions or restrictions

You provide an event for your employees that doesn’t meet the criteria for exemption explained in the previous sections.

Examples of events that don’t qualify for the exemption include:

  • any event costing more than £150 per head
  • an event costing less than £150 per head if you have already ‘used up’ the £150 threshold on other events (see the earlier section ‘You provide two or more qualifying events’)
  • any event that isn’t open to all of your employees, such as a Christmas party for directors only
  • any event that isn’t annual – for example, a party to mark the award of a major new contract

What to report, what to pay

For employees earning at a rate of less than £8,500 per year, you have:

  • no reporting requirements
  • no tax or NICs to pay

For company directors or employees earning at a rate of £8,500 or more per year:

  • report on form P11D
  • pay Class 1A NICs on the value of the benefit

Work out the value to use

The value to use is the full cost per head of the event – not just the excess amount over the £150 threshold.

You provide two or more qualifying events

Definitions or restrictions

You provide two or more annual events during the tax year, each of which costs no more than £150 per head and is open to all your employees.

What to report, what to pay

If the combined cost of the events is no more than £150 per head, then you have:

  • no reporting requirements
  • no tax or NICs to pay

If the combined cost per head of the events is more than £150, then:

  • you can apply the exemption to whichever combination of events best ‘use up’ the £150 threshold – follow the link below to see an example
  • for any remaining events, the rules in the section ‘Other social functions’ apply
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