An employer may spend up to £150 per head (inclusive of VAT) per year, in providing annual functions and events to entertain their staff. Provided the £150 limit is not exceeded, there can be any number of parties, for instance 3 parties at a cost of £50 each – at various times of the year.
To calculate the cost of the benefit
- Add together the cost of the party or function (room hire, food, entertainment, prizes etc), the costs of transporting staff and their guests, together with the cost of accommodation also provided.
- To work out the cost per head, divide the total by the number of persons (staff and any other guests) attending the function.
The £150 is not an allowance and so if the cost per head works out at £152, then £152 is taxable as benefit in kind and goes on your employees’ P11D, not £2.
- Summer party – cost per head £75
- Christmas ball – cost per head – £110
The ball would be covered by the exemption, and the employees taxed on the £75, as a benefit in kind.
Tax treatment for employer
The cost of the staff Christmas party (or any staff annual function) is tax deductible in the employer’s accounts. Section 46 ITTOIA 2005 gives a let-out clause which means that entertaining staff is not treated for tax in the same way as customer entertaining. Show this expense separately in the accounts as it is a staff benefit and therefore a cost of “staff welfare” (or similar).
The full cost will be disallowed for tax if it is found that the entertainment of staff is in fact incidental to that of entertaining customers.
Parties covered by the £150 exemption do not have to be reported on form P11Ds. If you do exceed the limit, and have created a taxable benefit in kind, you might consider settling is using a PAYE settlement agreement (you then pay your employees’ tax and NICs).
For further information, please do not hesitate to contact us.