HMRC aren’t known for their generosity. They’d take you to court over a penny and probably win. If you’re going to make one enemy, don’t make it HMRC.

However, in a rare act of generosity, HMRC provide tax-breaks for Christmas parties and other social functions, assuming that they meet certain criteria. It is the intention of this piece of writing to cover qualifying events and what rules apply.

You’d be ludicrous not to treat your staff to a party this year because it is a particularly generous allowance.

Qualifying Events

For a function to qualify, and thus be exempt from tax, national insurance, and reporting to HMRC, it must meet the following criteria:
• The event must be annual (Christmas Party, Summer BBQ, etc)
• The event must be open to all permanent employees (and their partners!)
• The total cost per head must not average greater than £150

What if I have more than one office/location?

If your business operates in more than one office and / or location, then your annual event must be open to all staff in that particular office or location.

This actually allows you to provide annual events at a departmental level (each department can have their own annual event), so long as every permanent employee can attend at least one of the events.

Are there any catches with the £150 limit?

Actually, yes there is.

You need to ensure that you do not exceed the £150 per head limit. The reason for this is because this will make your employees personally liable for tax and national insurance on the full amount. No deduction will be allowed for the £150 exemption.

You need to ensure that the £150 per head limit is respected to ensure that this gift to your staff does not turn into a headache!

How many qualifying events can I put on per year?

If you put on a single qualifying event, then there are no issues.

If you put on one or more qualifying events, then you must consider the combined cost per head for both events. If you can provide more than one qualifying event without the average price per head exceeding £150 per head, then by all means do it!

What if I exceed the limit, wish to host a non-annual event or wish to host an event only open to some employees?

These would be considered “other social functions” and you would not be able to avail yourself of the tax free status of “qualifying events”. Individual members of staff will be liable to cover tax and national insurance for the average cost per head plus any guest they brought. No deduction will be allowed for the £150 exemption.

Points to take away

• To summarize, an event will be a qualifying event where it is annual, where it is open to all permanent staff, and where the total cost per head does not exceed £150.
• You are welcome to put on several qualifying events, but the total cost per head of all of those events combined must not exceed £150 per head.
• If you exceed the £150 per head limit, the employee will be personally liable for the tax and national insurance for the average cost per head plus any guest they brought. No deduction will be allowed for the £150 exemption.
• You’d be crazy not to take advantage of this uncharacteristically

Craig

Craig Ineson is a law graduate of the University of Liverpool, current student of international business law at master’s level, a passionate restaurant reviewer, and experienced content writer.

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