Christmas Staff Parties

Section 264 of ITEPA 2003 allows an exemption where an employer hosts an annual event. Most employers tend to do this at Christmas, but it doesn’t have to be, and could be held at any time of the year. Of key importance is that it needs to be an annual event, made available to all employees, and at a cost of less than £150 per head.

All costs of providing the event must be counted when calculating the ‘per head’ cost. This could include:

  • Entertainment
  • Food and drink
  • Transport and accommodation that enables an employee to attend
  • VAT

This list isn’t exclusive, and in arriving at the ‘cost per head’ the total expenses should be divided by the number attending, which may also include non-employees.

The £150 is not an annual allowance, if the cost is exceeded then the whole amount will become taxable.

HMRC has now confirmed that this year, where all normal conditions are met, virtual events can be included when considering the £150 exemption.

HMRC has added the following exceptional example to their Employment Income Manual EIM21691:

A company holds one annual function in a tax year and does so virtually using IT. All employees are invited and each is provided with a hamper consisting of some food and drink to be enjoyed by the attendees during the party. The total cost per head is £100 which is within the £150 exemption and so the exemption applies.

This will come as great news for the 49% of employers who, in a recent CIPP poll, confirmed that they fund the full amount incurred for hosting the annual Christmas party.