EXPENSES AND BENEFITS: SOCIAL FUNCTIONS AND PARTIES

ASESA Solutions Ltd - EXPENSES AND BENEFITS: SOCIAL FUNCTIONS AND PARTIES

With the festive season approaching, we are taking a brief pause from our UK Budget updates to focus on an important and timely topic: the tax rules for staff Christmas parties and employee gifts.

HMRC clearly sets out that your reporting and National Insurance obligations depend on whether the event is annual, open to all employees, stays within the £150 per-head limit, the number of events held in the year, and whether directors are included.

What’s Exempt

Some events can be completely tax-free. To qualify for exemption, the event must be:

• open to all employees (or all employees at a particular location or department),

• an annual function (such as a Christmas party or summer barbecue),

• costing £150 or less per person.

This exemption applies equally to online or virtual events. Businesses operating across multiple locations can hold separate events at each site and still remain exempt, provided all employees are able to attend one of the events. You can also run multiple annual events as long as the combined cost does not exceed £150 per head.

What You Must Report and Pay

If any of your events fail to meet all the exemption conditions, the full cost becomes taxable. In these cases, employers must:

• report the benefit for each employee on a P11D, and

• pay Class 1A National Insurance on the entire event cost.

Where multiple annual events exceed the combined £150 limit, you may choose which events to treat as exempt. However, once the £150 exemption has been used, any further events—regardless of whether they cost less than £150 individually—must be fully reported and subject to Class 1A NIC.

Examples

Example 1 — One exempt party + one taxable directors-only party• Staff Christmas party costing £50/head is fully exempt.• Directors also hold their own party costing £75/head, but because it’s not open to all employees, it is taxable for those directors.

Example 2 — Two staff events exceeding the £150 annual limit• Two staff parties: £100/head and £80/head → total £180/head, so both cannot be exempt.• Employer can choose one event to exempt; it’s best to exempt the £100 event.• Anyone attending both pays tax only on the £80 event; attendees of the exempt event alone pay no tax.

Example 3 — Virtual annual event within the limit• Company holds a virtual annual party and gives each employee a £100 hamper.• Total cost within the £150 limit, so the whole event is tax-free for employees.

Planning your annual events with these rules in mind ensures your celebrations remain enjoyable, compliant, and fully tax-efficient for everyone involved.