Social Functions

An event can be considered a social function and therefore exempt from tax and NIC if the following conditions are met:

  1. It is annual (e.g. happening once a year, every year)
  2. It is open to all employees, so everyone is invited
  3. The cost per head is £150 or less

Examples: Christmas parties, Days Out, Summer BBQ parties etc.

Non-examples: retirement parties, long service award events, team building events, company celebration parties (e.g. company’s 50th anniversary, etc.)

Note: The cost of £150 or less per head needs to meet the following conditions:

  1. It is not an allowance (e.g. if the cost of a party is more than £150 per head, it needs to be reported in full and taxes apply for full amount)
  2. It needs to include VAT
  3. It can include cost of transport for employees to arrive at the venue
  4. It can include overnight accommodation for employees

Notes:

1.  Guests or employee’s guests are added to the total number of attendees when calculating costs per person.

2.  Multiple annual events can be considered one single annual function if the combined costs of the events are no more than £150 per person.

Employers may need to apply for a PSA (PAYE settlement agreement) for entertaining from HMRC. For this they can write to HMRC wishing to apply for PSA, explaining what expenses are covered. HMRC will send them P626 to fill in.

If employers have a PSA for entertaining:

  1. They should not put through Payroll for tax or NIC
  2. They should not include on P11D
  3. They should not pay Class1A, they should pay Class1B

Expenses and benefits included in a PSA must be one of the following:

  1. Minor (e.g. birthday gifts)
  2. Irregular (e.g. one off relocation expenses)
  3. Impractical (e.g. shared car trip, taxi trip cost)

Source:
HMRC Webinars
Expenses and benefits: social functions and parties: Overview – GOV.UK (www.gov.uk)