With the countdown to Christmas in full swing, it means we’re also closing in on the party season.

Workplaces up and down the country will be preparing to don paper hats and let their hair down at the Christmas do. It is also a good time to refresh yourself on the rules regarding the tax aspects of staff parties.

The Annual Party

The majority of businesses utilise their £150 per employee exemption on the Christmas party, however the exemption can be utilised for any annual event such as a Halloween party or a summer barbeque.

HMRC allow an exemption from tax, National Insurance Contributions and reporting if your annual party:

·         Is an annual event, such as a Christmas party or summer barbeque

·         Is open to all of your employees

·         Costs no more than £150 per head inclusive of VAT

Two or more functions

The £150 rule counts towards all your annual parties and not just for Christmas. If you put on two parties a year, a summer barbeque and a Christmas party then the £150 per head must be spread across both parties. For example, if you have already held a summer barbecue which cost £100 per head, and your Christmas party is expected to also cost £100 per head then the Christmas party would not qualify for exemption as the combined total shall exceed the £150 exemption.

However if the Christmas party only costs £50 per head than as the combined figure is now only £150 per head you are entitled to claim the full amount as the combined total is within the £150 threshold.

Exemption, not allowance

The £150 isn’t an allowance that can be offset against the cost of the party if the cost of the party is in excess of the £150 per head threshold. If the event(s) cost more than £150 per employee, you would not be able to offset £150 against the bill and therefore the entire cost of the Christmas party would not be eligible for exemption.

Non-employees

It is worth noting that the average cost of the party is calculated with reference to the total number of people attending which includes non-employees (partners of employees, customers, suppliers etc).

As specialist contractor and freelance accountants, our team has years of experience in the contractor market. If you are thinking about a contract role and would like to know more please call our help desk on 0161 791 1674.