The festive season is approaching and many employers are planning to celebrate with their staff by throwing a party or a similar social function. But did you know that there are tax implications for such events?
Staff parties and other social functions are considered as benefits in kind, as they provide entertainment and enjoyment for employees. However, there is a special exemption for annual parties and similar events, which means that they can be tax-free for both the employer and the employee, if certain conditions are met.
These conditions are that the event is:
- Provided by the employer
- Available to all employees, or all employees at one location
- Costing no more than £150 per head, per year
The £150 limit includes VAT and any extra costs such as transport and accommodation. It is not an allowance, so if the cost per head exceeds £150, the whole amount becomes taxable. The limit applies to the total cost of all the annual functions that the employer provides during the tax year. If the employer provides more than one function, the exemption can be applied to the ones that best utilise the £150 limit.
How to report and pay benefit in kind tax on staff parties:
If the staff party or function meets the conditions for the exemption, there is no need to report or pay any benefit in kind tax on it. However, if it does not meet the conditions, or if it costs more than £150 per head, then the employer must report it on form P11D and pay Class 1A National Insurance contributions on the taxable value of the benefit. The employee must also pay income tax on the benefit through their self-assessment or PAYE. Alternatively, the cost could be reported on a PAYE settlement agreement with the approval of HMRC so the employee is not impacted by an additional taxable benefit.
Please do not hesitate to get in touch with your Drummond Laurie contact to discuss this further.