For an event to be exempt from tax and NI, all the following 3 conditions need to be met –
- Annual event
- Open to all employees
- Cost £150 or less per head
Annual event
An annual event is a recurring based event, for example summer barbeque or employee day out trip.
Retirement party or team building event is NOT considered an annual event and is not exempt from tax and NI.
Open to all employees
If a company has one site of work but has separate departments, if the company hosts separate events for each department on separate days, if all members of each department are invited to their individual party, this is still considered that all employees have been invited and exempt from tax and NI.
If the company is in more than one location in the UK, for example London and Manchester, if all employees located in the Manchester office are invited to the annual event in Manchester, then this is considered that all employees have been invited, even though the event is not for the London employees.
If the event is only for the directors of the company, the event will not be exempt, if this company has also employees who are not directors.
Cost £150
This amount is not an allowance, rather an exemption, so if the event cost is £200, then the entire £200 is taxable and you cannot apply £150 as an allowance, to reduce it to £50.
The £150 cost includes VAT amount, cost of transport and any accommodation provided.
To calculate the cost per person, you need to take the total cost of the event and divide it by total attendees (this can include family members of the employees who also attended the event), this will provide the individual cost per head.
If there are multiple annual events, the combined cost cannot exceed £150, so if they cost of first event was £120 and the second event £70, the first event is exempt from tax, however, as the second event exceeds the £150 exemption, the total £70 is taxable benefit.
How to pay tax on these benefits
In cases where it is a taxable benefit there are 3 options how to process –
- Via P11D form at the end of the tax year, employee pays tax and employer pay Class 1A NI.
- Via monthly payroll, if the company informed HMRC that processing taxable benefits via payroll.
- Via PAYE settlement agreement (PSA), if the company setup a PSA agreement with HMRC, the company at the end of the tax year, pays tax on behalf of the employee and Class 1B NI.
PSA agreement is only applicable for benefits that are –
- Minor – for example a birthday presents above £50.
- Irregular – for example relocation costs that exceeded the £8,000 exemption.
- Impracticable – for example taxi rides paid for a group of employees.
