Most employers are aware that they can throw a staff party for their employees at a cost of up to £150 per head without this being treated as a taxable benefit, but there are conditions to watch out for.
The exemption can apply to any type of party, such as a summer barbeque or Christmas party, provided the party is held annually. Therefore, a one-off event, such as a 25th anniversary party, does not qualify.
Another requirement is that the party is open to staff generally, although it is possible to have an event for employees at one location or put on separate parties for different departments. A function should not just be for directors, unless of course there are no other employees.
The £150 per head is not an allowance, so the entire benefit is taxable if the per head cost just exceeds £150 by a pound or two. Along with expenditure on room hire, food, entertainment and prizes, cost includes VAT and any transport or overnight accommodation provided. Two or more annual parties can be exempt as long as the £150 limit is not exceeded.
Example – the summer party
A company throws an annual summer barbecue for its employees. For the summer 2019 party, the total cost is £11,200, with 40 staff attending. Each staff member can bring one guest. The cost per head is £140 (£11,200/80), so there is no taxable benefit for employees.
It may be impossible to establish the exact number attending a large function, but an estimate is permitted based on the number budgeted for or booked.
Smaller occasions can be funded tax-free by making use of the £50 trivial benefit exemption. There is quite a bit more flexibility here, since the only relevant condition when it comes to throwing a party is that the per head cost does not exceed £50. The function therefore does not need to be open to all employees or be held annually.