Everybody's having fun - unless you are booking your Christmas staff event and get the sums wrong! Below is a reminder of HMRC's tax rules which apply to events that cost over £150 per attendee.

As the mince pies and decorations appear in the shops, I make no apology for recycling a reminder of the tax traps which arise from work Christmas parties.

HMRC's rules mean that the benefit of an “annual event” costing less than £150 per attendee is not taxed on the employees. If it costs more than £150 per attendee, the entire cost is a taxable benefit. 

The majority of caring employers normally pick up the tax and National Insurance which would otherwise be payable by the employees through an annual PAYE Settlement with HMRC. So if the event costs £151 per head, the tax and NIC for a 40% taxpayer goes from zero to £139 so the cost to the company is almost doubled. 

The most common points which are often overlooked and can tip a tax free “perk” to employees into a large tax bill are:

  • The exemption from tax only applies to an “annual event”. A 25th anniversary celebration of the company cannot be an “annual” event.
     
  • Overlooking incidental expenses in working out the overall costs – for instance, taxis home for the more inebriated, prizes for best dancing, hotel bills, DJs and magicians;
     
  • "No shows”. If you have booked a venue for 150 employees and only 100 actually turn up, the cost per attendee can unexpectedly go over the £150 limit.

HMRC are adamant that the cost is divided between the number who attended and will not accept that the 100 people present did not eat or drink the same amount as the expected 150.

Finally, it is the cost per person attending the event which is critical and the rules are often understood to mean number of employees. Allowing partners, clients, and friends (but perhaps not random strangers from the street) can turn a taxable event into a tax free one.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.