Tax Implications for Hosted Christmas Parties

Dated: 18 December 2017 Author: Jack Bonehill, Employment Taxes Consultant

It’s that time of year where most staff attend a staff party covered entirely (or partly) by their employers. Under normal circumstances, this would constitute a taxable benefit in kind for employees; however, there is an ‘annual functions’ exemption which can prevent Christmas parties becoming a benefit.

"If the cost  per head
exceeds £150, the entire
party becomes a
taxable benefit"
The annual functions exemption will exempt a Christmas party, where it is open to all employees (or all employees at a  particular location) and cost per head does not exceed £150. ‘Cost’ includes travel costs to the party and any overnight accommodation provided. If the cost per head exceeds £150, the entire party becomes a taxable benefit, not just the excess.

The exemption can apply to multiple annual events in a single tax year. Where the combined cost per head does not exceed £150, all of the events will be exempt from being taxable benefits. Alternatively, if the combined cost per head exceeds £150, then the employer can choose which events to exempt, with the condition that the combined cost per head of the chosen events does not exceed £150. The other events will not be exempt by the annual events exemption.

Where annual events are not exempt, they need to either be included on P11Ds or in PAYE Settlement Agreements. 

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