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As October arrives, many businesses are in full swing planning their staff Christmas parties.  These events are a fantastic opportunity to celebrate achievements, thank employees for their hard work and strengthen team spirit ahead of the festive season.  However, it is also the perfect time to consider the tax and National Insurance implications that come with hosting such events, whether it is your summer barbeque, Christmas party or a celebration meal.  By planning early and understanding the rules, employers can ensure their celebrations remain compliant while still delivering memorable occasions for their teams.

To be exempt from paying tax and National Insurance and having to report to HM Revenue and Customs (HMRC) on the cost of parties or functions paid on behalf of your staff, they must:

• be open to all employees
• be annual
• cost £150 or less per person (inclusive of VAT)

If you have a large business and separate parties are held for each department, if all your employees can attend one of them, the exemptions apply.  The same applies if your business has more than one location, if an annual event is open to all staff based at that location, it is exempt.

Any events that do not meet the exemption criteria must be reported to HMRC.  The full cost of the event will be subject to Class 1A National Insurance and must be reported via your payroll scheme or on your employees P11D form.

It is also important to remember that the cost of £150.00 or less per person applies for the entire tax year. For example, if you have already held a summer barbeque which cost £75.00 per head, you can still cover the cost of a Christmas party but only up to a further £75.00 per head, without having to report the amount and pay tax and National Insurance.

Unfortunately, the £150.00 is a limit and not an allowance so if your summer barbeque costs £100.00 per person and your Christmas party costs £110.00 per person, the Christmas party would be covered by the exemption and the summer barbeque would have to be taxed on your employee as a benefit in kind.

You must report the cost of social functions and parties to HMRC if your employees are part of a salary sacrifice arrangement.

The costs of Christmas parties for staff are a tax-deductible expense, so they can be included in your financial accounts.

If you would like to speak to our team regarding these rules, please do not hesitate to get in touch with our team of tax specialists by calling 01228 711888 or 01387 270340.

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