Are you currently planning your office night out? What is the tax implication for your staff?
There is an income tax exemption for annual functions. The exemption is not restricted only to a Christmas party but can used for alternative annual functions during the year. The exemption must be used for annual functions i.e. functions that can happen again the following year. The exemption cannot be used for a one-off function such as the 10th anniversary of a business.
The function must be open to all employees or at least all employees in one particular location.
The total value for all annual functions must not exceed £150 per head. You can fit in any number of annual functions as long as the combined cost per person for all functions does not exceed £150 per head.
If the combined cost does exceed £150 per person, then only the functions that are fully covered by the £150 exemption will be exempt. The whole cost of the other functions would become a taxable benefit to the employees not just the excess above £150.
Therefore, if the combined £150 per person limit is breached, the benefit of the other functions needs to be reported as such to HMRC.
When calculating the cost of the function per head, include the VAT, cost of transport and overnight accommodation provided. The total cost of the function is divided by the total number of attendees but remember to include non-employees who are attending.