It’s that time of year where staff look forward to having a Christmas party. Whilst businesses no doubt want to reward their staff for another year of hard work, they don’t want to create additional tax issues for themselves or their staff in doing so. Fortunately there is a way that, for tax purposes at least, you can have your Christmas cake and eat it.

When a business provides anything other than cash to their employees, the benefit in kind rules come into play. This would normally mean that the value of what is provided is treated as taxable income for the employee, and the employer would have to pay Class 1A National Insurance Contributions as well. There are a number of exemptions to these rules, and one of those centres around annual events.

Providing that the cost does not exceed £150 per person (including VAT) then the office party is exempt from the benefit in kind rules. To qualify, the function must be open to all employees (though they do not all need to attend) and not just a select group. If the business has different locations, it is possible to have separate events at each location. This is provided they are open to all employees at that location, and the events are broadly similar in scope.

If you like to have more than one party a year, you still might be able to take advantage of this exemption. If the combined cost of all parties are under the limit, then they are all exempt under this provision. Otherwise the events that make best use of the limit (i.e. come closest to £150 cost without going over) would qualify. Any other events would be liable in full.

Be very careful when making the calculations of the cost per head. If you exceed the limit, then the whole amount becomes assessable, not just the amount you went over.

We hope you have enjoyed reading this article. The future of our volunteer led, non-profit publication would be far more secure with the aid of a small donation. It only takes a minute and we would be very grateful.