Parties can cause major headaches - and not only for the participants! The planning can be difficult even after you managed to book a venue before all the best ones got taken as soon as everyone got back from the summer holidays. But by observing a few simple rules, you can make the most of the exemption for ‘annual’ staff entertainment events.
The limit is £150 per person attending the event, not per employee, and includes VAT. So if your party is for employees and other halves, that’s £300 per couple. If your business is a family-oriented business you can include their children too and it’s not a case of juniors half price, so for a couple with two children the allowance is £600. If any non-employees attend their cost is not a benefit to any employees. However, it counts as business entertaining, so remember to disallow it from the business’ taxable profits.
The £150 covers all of the costs of providing the function, including travel and accommodation. So you cannot apply £150 on the party itself and claim the cost of taxis to the venue as a separate allowable expense.
If you hold more than one event per year, the £150 allowance can apply to more than one so long as the total cost per head does not exceed the limit. You cannot add together the total cost, take off £150 and leave just the rest to be taxed. Each party is either completely in or completely outside the allowance. But when you come to complete the annual returns of benefits and expenses (forms P11D) you can choose to enter the combination that gives the least tax liability, as shown by the following example.
Example - Three annual functions
Dave and Nick’s employer holds three functions a year: a Christmas party costing £80 a head; summer party £80; and day at the races £70. Dave attends all three while Nick only goes to the Christmas and summer parties.
The race day and either of the other parties total only £150, so Dave is only taxed on one lot of £80.
The two events that Nick attends total £160, so only one of them is exempt and he too is taxed on £80.
Even if Nick paid £10 towards one of the parties that wouldn’t work, because the cost is worked out by dividing the total cost of the party among those attending.
If everyone attending was expected to pay £10 that would reduce the cost per head.
Gifts to employees, whether of cash or in kind, are taxable apart from small non-cash gifts to employees whose annual earnings are less than £8,500. This probably also applies to gifts given out at the Christmas party but not to items such as prizes given as part of the entertainment.
If you want to give all of your staff presents worth, say £30 and your Christmas party budget is currently £110 per head, why not include a quiz or party game with prizes worth £30+? The first prize needs to be something more and the prizes need to be different but if the numbers are right a £50 first prize should not take the average cost above £150. There’s no restriction on what the prizes can be: food and drink are perfectly allowable.
Practical Tip :
If your party budget looks like going over £150, why not reduce your spend on the drinks (say) but give the staff presents equivalent to the difference instead (actual drink or vouchers, for example)? That way they’ll only be taxable on the gift and not the full cost of the party.