With the festive season now in full swing, many businesses are looking to treat their employees with a seasonal party. The Institute of Chartered Accountants in England and Wales (ICAEW) has advised employers to be aware of the tax implications associated with these parties.

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Running seasonal parties for your employees count as benefits and can attract the attention of HMRC. However, an exemption means that staff parties and social functions will not be treated as a taxable benefit if they cost £150 or less per head.

If the sum spent is more than £150 per head, then the full amount will become liable to national insurance and income tax for both employee and employer.

The price per head is calculated on the total number of attendees, including all staff, their guests and any clients.

There are some other rules that have implications on these benefits:

  1. The event must be annual, such as a Christmas party of a summer barbecue.
  2. The event must be open to all employees. For a business operating from multiple locations, an annual event that is open to all staff based at one location still counts as exempt.
  3. Separate parties for different departments are also allowed, if all employees can attend one of them
  4. Gifts given to employees must not exceed £50 per employee, and must not be a reward for services

If these limits are exceeded, they must be disclosed on a P11D form.

Quote from Nigel Holland:

“Make sure you are aware of the tax implications and limitations on seasonal parties. Make sure you also declare any gifts that exceed the £50 limit.”