Vincent Wood, tax partner at Baker Tilly’s Watford office, stressed: “Holding an office party does not have to mean nasty tax consequences. In principle, almost any benefit paid for by an employer is a taxable benefit for the employee, but the Inland Revenue does bend the rules a little at this time of year. Christmas celebrations that are open to all staff and cost no more than £150 per person, inclusive of VAT, do not incur a PAYE and NIC liability.
“This includes the costs incurred in arranging the function, taxis home and accommodation. It also applies to everyone attending, so husbands, wives or partners qualify for their own £150 limit.”
For firms who like to party more than once a year, as long as combined costs remain under the £150 ceiling, no liability arises. But if this limit is overstepped at a single event, then tax and national insurance must be paid on the whole amount. If a firm holds two functions for its staff, costing £100 per head and £60 per head, a tax and NIC liability will arise on the £60 function.
Wood continued: “With the hammering many industry sectors have taken this year, employers will be looking to make things bright for their staff this festive season. As long as they keep a careful eye on the tax implications, everyone can enjoy a fantastic Christmas bash with no tax horrors jumping out of the crackers!”