The Fun and the HMRC on Staff Christmas Parties

With the club Christmas party season upon us, it is perhaps prudent to ensure the taxman does not spoil the party. So how do you ensure you avoid any unpleasant surprises at a later date? In the first instance as a club, if you provide social functions and parties for your employees at any time of the year, you have certain National Insurance and reporting obligations. What you need to report and pay depends on: if it’s an annual event (see note 1) if it’s open to all your employees if it costs more than £150 per head (see note 2) how many events you provide during the tax year whether the employee is a director, and how much they earn There are exemptions and, depending on these, you might not have to report anything to HM Revenue and Customs or pay tax and National Insurance. To ensure exemption, the party or similar social function must be all of the following: £150 or less per head annual, such as a Christmas party or summer barbecue open to all your employees If your business has more than one location, an annual event that’s open to all your staff based at that one location still counts as exempt. You can also put on separate parties for different departments, as long as all of your employees can attend one of them. You can, also, have more than one event during the year, and stay exempt; as long as the combined cost of the events is no more than £150 per head per year. If any of the events you provide aren’t exempt, you’ll have to report the costs to HMRC and pay National Insurance on them. You must: report on each employee’s form P11D pay Class 1A National Insurance on the full cost of the event If any of the events cost less than £150 per head, you may be able to count these costs as exempt. But you can’t do this if you’ve already used up the £150 exemption on another event. See here for examples. However, you’ll have to report and pay on the full costs of any additional events that go over this limit, even if they cost less than £150 per head on their own. You do have to report how much social functions and parties are worth to each employee if they are a part of a salary sacrifice arrangement. If the costs of the events are less than the amount of salary given up, report the salary amount instead. Notes 1.  The general meaning of “annual” in the context of section 264 ITEPA 2003 is that it is something that happens once a year on a recurring basis and it follows from this that a one-off event, for example, a party to celebrate the club’s centenary, cannot be an annual party or function. 2.  The figure of £150 is not an allowance. For functions that are outside the scope of the exemption (see example) directors and employees are chargeable...
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