What are the tax implications on social functions and parties?
December 14, 2021
by  Rubi Shan

What are the tax implications on social functions and parties?

Christmas is around the corner and you may be throwing a Christmas party in the near future. We all need to be treated after the hectic year we’ve had.

Lets discuss the taxes on business parties, this could be an annual Christmas party or an annual barbeque. Depending on the event, you may or may not have to report this to HMRC and pay taxes.

The points to consider are:

1.Is this an annual event? (This includes virtual events)

It must be an annual event (happens once a year on a recurring basis). Parties such as retirement parties, team building events are taxable and must be reported to HMRC.

2. Is it open to all employees?

This event must be open to all employees and not selected employees

3. What is the cost per person? Is it above or below £150?

The total cost per person must be capped at £150. This will include employees, partners and any household members. This £150 total includes VAT, transport and overnight accommodation.

Cost per person = Total Cost/Number of Attendees

Number of Attendees includes non-employees such as partners.

4. The number of events during a tax year

You will not have to pay any taxes to HMRC if all of the following conditions are met.

What happens if I exceed the £150 per person?

If the cost per person exceeds £150, the whole amount will become taxable.

Can I only have one annual party?

No, the £150 limit could be used across more than one event. However, the combined cost  cannot exceed £150 per person.

Are there any exceptions?

In certain cases, if there is more than one annual event and the cost per person exceeds the £150 threshold, it is possible to get an exemption for the second party. This  is known as trivial benefit (you must meet the conditions of the Trivial benefits).

If the annual party conditions are met, what happens next?

If the conditions are met, the cost of the party must be reported on a P11D for employees (Section K) or reported on payroll if the company has registered for payroll benefits.

Employers will be required to pay Class 1A National Insurance contributions.

I have a PAYE Settlement Agreement (PSA), what do I do?

If you have a PSA, you will not have to report the annual party on payroll or your P11D. You will not need to pay Class 1A National Insurance. Employers will be required to pay Class 1B National Insurance (it is the same national insurance rate, it just falls under a different category).

The following types of expenses and benefits can be included in the PSA:

  • Minor
  • Irregular (one off)
  • Impracticable (shared expenses that are not easy to allocate to each individual employee)

For further information, you can find it here.

If you would like to discuss any of the above, please email us on rubi@pfconsult.co.uk about the party you are considering.

-PFC Team

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