Annual Staff Parties
Hosting an annual staff party is a fantastic way to celebrate and foster team spirit. With the right planning, businesses can take advantage of tax exemptions and ensure employees don’t face unexpected Benefit-in-Kind (BIK) charges. Here's a complete guide to understanding the tax rules around staff parties:
The £150 Per Head Rule
Businesses can host an annual staff party that is not taxable on employees if the aggregate cost per head is less than £150. This cap applies to the total cost of the event, including:
- VAT
- Food, drink, and entertainment
- Transport costs (e.g., taxis or trains)
- Overnight accommodation
To calculate the cost per head:
- Divide the total event cost by the number of attendees, including employees, family members, friends, contractors, and clients.
- Remember, the number of attendees may exceed the number of employees, which can help reduce the per-head cost.
Example Calculation
If a company spends £6,000 on a Christmas party attended by 40 employees and 10 non-employees, the cost per head is:
£6,000 ÷ 50 attendees = £120 per head.
Since the cost per head is under £150, the event is tax-free for the employees that attended.
Key Points to Remember
- Whole Event Costs: The £150 limit applies to the entire cost of the event, from start to finish, including food, drink, entertainment, transport, and accommodation.
- Inclusivity: The event must be open to all employees generally or to all employees at a specific location or department. Events for select groups (e.g., just senior management) won’t qualify.
- Flexibility:
- The annual event doesn’t have to be a Christmas party—it could be a summer barbecue, team-building retreat, or similar event.
- Companies can hold multiple events in a year, but the combined cost per head across all events must not exceed £150 to remain tax-exempt.
Exceeding the £150 Threshold
If the £150 per head limit is breached, the entire cost becomes taxable, not just the amount over £150.
Example Calculation
If the total cost of the party is £8,000, and there are 50 attendees, the cost per head is:
£8,000 ÷ 50 attendees = £160 per head.
In this case, the full £160 per head would be taxable on the employees that attended.
Reporting Taxable Benefits
If the cost is taxable:
- The benefit must be reported on each employee’s P11D form, and they will be taxed accordingly.
- Alternatively, the employer can settle the tax via a PAYE Settlement Agreement (PSA), which "grosses up" the tax to cover employees' liability. This tends to be a more expensive approach though, so please discuss this with us before deciding to take this route as we can help run some sample calculations.
Tips for Staying Within the Exemption
- Plan Costs Carefully: Keep track of all expenses and calculate the cost per head before finalising arrangements.
- Utilise Multiple Events: If your business holds more than one event, allocate the exemption to lower-cost events first.
- Record-Keeping: Maintain detailed records of attendees, costs, and event logistics to substantiate claims in case of HMRC inquiries.
- Talk to us: Discuss your plans to iron out any issues by discussing the matter with us before the event takes place.
Final Thoughts
Annual staff parties are an excellent way to reward your team while taking advantage of tax exemptions. By ensuring costs stay within the £150 limit, businesses can avoid unexpected liabilities for both the company and employees. For tailored advice on managing event expenses and tax compliance, feel free to get in touch.
