Last year, the Covid-19 pandemic and national lockdown took Christmas parties off the agenda. This year some parties are taking place so how can you celebrate the festive season without triggering a tax liability? Check out our guidance below and then you can party safe in the knowledge you won’t get stung.

Limited tax exemption

There is a limited tax exemption for annual parties and functions, which can be used to ensure that no benefit in kind tax charge arises by holding a Christmas party. However, as with all exemptions, there are conditions to be met. The exemption applies equally to virtual parties as to ‘real life’ events:

• The function must be annual

The exemption only applies to annual functions. If you hold a Christmas party every year (Covid-19 restrictions aside), the exemption will be available. If, however, you decide to hold a one-off event, the resulting benefit will be taxable.

• There is a £150 per head limit.

The exemption only applies if the cost of the function is not more than £150 per head. This is the total cost of the function (including VAT) divided by the number of people attending (guests as well as employees).

If you are feeling really generous and the cost per head is more than £150, the full amount is taxable, not just the excess over £150. Also if the employee brings a guest, the taxable benefit is the cost of the employee’s attendance at the event, and that of their guest.