If you provide entertainment benefits to staff, your company may need to pay Class 1A National Insurance of the value of such perks. You will also need to report the value of such benefits on each employee’s annual P11D form. However, there is one exception that you may not know about.
HMRC’s £150/head staff party concession
If your function is a recurring annual event, such as an awards dinner, a Christmas party or a summer event, and all of your employees are invited to attend and the cost of organising the event is less than £150 a head, you are not obliged to report the event to HMRC or pay any Class 1A NICs.
If your company is based across separate departments or locations, it is perfectly acceptable to hold separate functions under the same rules.
The only prerequisite is that every employee is invited to attend at least one of the functions.
What if the event exceeds the £150/head threshold?
If the social event in question (or total of the annual cost of events) exceeds £150 per head – even by just £1, or it is not open to all employees, then these costs are not eligible to take advantage of this HMRC exemption.
Your company will be liable to pay Class 1A National Insurance on the total sum of the event costs. The costs must be reported in full to HMRC so that National Insurance payments can be calculated and paid accordingly.
What about multiple events?
It is worth noting that the £150 per head exemption applies per employee per year, not per event.
The exemption can therefore be split across multiple functions, as long as each separate event meets the other eligibility criteria.
Things employers should be aware of
When calculating the cost per head of a party or event, employers must factor in all costs accrued in order to enable its employees to attend the function.
These costs include transport to and from a venue if provided by the company as well as overnight accommodation if paid for by the employer.
The total cost per head must also be inclusive of VAT.
This total sum of the costs of organising the event must then be divided by the number of employees who attend, not the number who were invited, in order to arrive at the cost per head.
The £150/head limit is an exemption, not an ‘allowance’. You can only claim for the costs of staff entertainment against your Corporation Tax bill if they are genuine business costs.
Make sure that you keep accurate records of any expenditure, and ensure that any bills or receipts are in your company name.
To find out what else you can claim for, read our concise guide to limited company expenses.