Tax implications of seasonal parties into account

The festive season is now in full swing, and the Institute of Chartered Accountants in England and Wales (ICAEW) has advised employers to be aware of the tax implications associated with a seasonal party.

Many employers are planning seasonal parties for their employees; however, these parties count as benefits and can attract the attention of HMRC. 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 pounds per head, then the full amount will become liable to national insurance and income tax for both employee and employer.

The event must also be annual, such as a Christmas party or a summer barbecue, and it must be open to all employees.

If a business has more than one location, an annual event that’s open to all staff based at one location still counts as exempt. Separate parties for different departments are also permissible, if all employees can attend one of them. The price per head is calculated on the total number of attendees, including all staff, their guests and any clients.

HMRC does accept that minor gifts may be provided tax-free to employees. The trivial benefit exemption provides a limit per gift of 50 pounds per employee, and the gift must not be a reward for services.
If these limits are exceeded, they must be disclosed on a P11D.