Q: We would like to hold our annual Christmas party for our employees and have found a venue where it would cost £90 per employee. We also hold an annual summer party that had cost the employer £75 per employee. What are the tax implications of these parties?
A: Employers that hold parties for their employees must meet certain criteria for the costs to be exempt from tax and national insurance. The parties must be held annually, be available to all employees and the cost cannot exceed £150 per person for the tax year. For this situation, both of the functions are annual so that will fall under the exemption rules. Unfortunately, as the combined cost of the parties exceed £150 part of the costs will not be allowable. Under ITEPA 2003 s264, if the cost of a function exceeds £150, the whole amount is taxable.
However, if the aggregate of several functions are above the £150, then it can be used in the most efficient way (irrespective of the order of the events). This means that no tax or national insurance (Class 1 and Class 1A) will be charged on the £90 Christmas party and attracts no reporting requirements at all. The summer party at a cost of £75 will be subject to tax and Class 1A national insurance and will be assessed on each employee attending.
In association with Croner Taxwise