Christmas Party this year? Make sure you know the rules on your allowance first or this could cost you dearly!

Christmas Parties Allowance

The tax allowance for any annual Parties and functions is £150 per head per year in total. This has been fixed since 2003 and can includes several annual functions such as the Christmas party, summer party or annual golf day.

If a function takes the cost per head over £150, even by just 1p, tax is due on the total cost and not just for the excess over £150.

Some good news is that the employer can plan and choose which event triggers the excess charge, so they pick the lower costing event to treat as fully taxable.
This allowance should go up with inflation, but HMRC has not increased it since 2003. With rising venue costs and employee expectations, pressure is on employers to be able to provide a great party at a reasonable cost.”

Where the costs end up more than £150 per head, employers will be unlikely to want to be seen as mean by asking employees to pay tax on the party.

In this case, they could consider entering into a PAYE Settlement Agreement (PSA), which means that the employer pays the additional tax rather than the employee.

“This tax can increase the cost of the party so the decision should not be taken lightly, but it would be a nice Christmas present for employees.”