With the festive season approaching, many companies are preparing for their annual Christmas celebrations. However, it is worth remembering that HMRC provides a tax-efficient allowance to help businesses cover the cost of staff events.
Employers can spend up to £150 per employee per year on annual events such as a Christmas party without creating a taxable benefit. This allowance can also apply to virtual events, which may be particularly useful for organisations with remote or geographically dispersed teams.
To qualify for the exemption, the event must be open to all employees. If a business operates across multiple locations and hosts separate events at each site, the exemption can still apply provided every employee has the opportunity to attend at least one event.
What if Multiple Events Are Held?
If a business holds more than one annual event, such as both a summer and a Christmas party, the combined cost per employee must not exceed £150 for the exemption to apply.
What Happens if the Limit Is Exceeded?
If the £150 threshold has already been used or the event does not qualify for the exemption, the cost becomes a taxable benefit.
In this case, the employer must:
Report the benefit on each employee’s P11D form, and
Pay Class 1A National Insurance contributions on the full cost of the event.
Where the cost is covered through a salary sacrifice arrangement, and the value of the sacrificed salary exceeds the cost of the event, the higher salary amount must be reported instead.
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