Its Christmas party season, a time to reflect on the past year and look forward to the next. But as the finishing touches to party plans are made and catering numbers confirmed, for some business owners the thought of receiving the post party bill can pose a bit of a headache.

Many employers are unaware that HM Revenue & Customs (HMRC) offers tax exemptions for annual parties and social functions. Whilst this incentive is available year-round, the busy festive season is the prime time to take advantage of this exemption.

Provided the cost of the event does not exceed £150 per head (including VAT), there is no tax to pay. The cost per head can include accommodation, transport and food and drink but the overall cost must not exceed the £150 threshold, even by a penny.

To calculate the cost per head, HMRC states that you should divide the total cost of each function by the number of people attending (including non-employees).

One point to note is that all employees, from all locations and areas of the business, must be invited to attend.

Employers may hold several events throughout the year, but the total claim for all functions must not exceed the £150 threshold. This means that some will decide to claim for summer events rather than festive ones. 

Outside of this specific exemption, so for example if the cost per head exceeds £150, staff entertainment is considered to be a ‘benefit in kind’ and therefore directors and employees would need to pay tax on the amount of the benefit. Alternatively the company can settle the tax by entering into a PAYE Settlement Agreement.

This is one small ‘gift’ which many businesses will be grateful to receive. To find out more about this and to discuss your company’s situation, please get in touch with me, Susie Walker, or another member of our Tax team.

Got a question? If you have any queries get in touch with your usual Johnston Carmichael contact or another member of our Corporate Tax team.