Although I am not sure if we are allowed to discuss Christmas in early September, there have already been stirrings in the media, not the least of which is the failure of the Korean shipping company, Hanjin. So aside from concerns that there will be no toys in the shops this Christmas, do we need to worry whether the Christmas Party is taxable?
This will be relevant to some employers, and every employer should be aware of the rules governing whether a social function needs to be reported to HMRC. If you go outside the rules, you will need to declare the Christmas Party for tax.
Rules for Reporting and Paying
Currently there are a few rules, and if your social function / party meets the rules it will be exempt and you do not need to report or pay.
- The cost is less than £150 per head.
- It is open to all employees
- It is an annual event
So, if your Christmas Party does not meet these rules you will need to pay Class 1A NICs on the full cost of the event and report it on employee P11Ds.
£150 per head is an Annual Limit, and includes VAT
To arrive at a cost per head you divide the total cost by the number of employees that attend. The cost of the function includes VAT, and any transport or overnight accommodation provided.
The £150 is an annual figure, so if there are two or more functions it is the aggregate that is considered. Each function has the cost per head calculated and then they are brought together, if the total cost is over £150 then the will be a liability for reporting and paying taxes.
Where the total cost does rise above £150 the function that best utilises that limit can remain exempt, but the full costs of other functions are taxable and must be reported.
£150 is not an annual allowance
The £150 is not a tax free allowance available to spend on social functions. If a function rises above the £150 per head limit, or is not exempt, then Class 1A NICs are payable on the full cost of the event, and the event should be recorded on the P11D.
The Event is Open to All Employees
If an event is not open to all employees, for example it is only for the directors of a company, it will not be exempt and so be liable for reporting and taxes.
If a company has more than one location, then an event open at one location can still count as an open event. You can also have events per department and remain exempt, as long as all your employees can attend at least one of them.