Employers can cover the cost of certain staff social events without incurring tax liability, thanks to a statutory exemption that now replaces the previous concession, provided certain conditions apply. This exemption applies to “annual parties or similar functions,” provided they are available to all employees or available generally to those at a specific location. During the Covid-19 pandemic, HMRC clarified that a ‘function’ could include virtual parties, where employers were unable to host a traditional party at which employees would have been physically present.

A key condition is that the cost per head must not exceed £150, inclusive of VAT. If an event surpasses this threshold, the entire amount is taxable, not just the excess over £150.

If you’ve already held a Christmas party, it may still be possible to host a summer event, as long as the combined annual cost per head remains within the £150 limit for the year. Should the total exceed £150, you can choose which events to include in the exemption. For instance, if the Christmas party costs £100 per head and the summer event costs £70, you could designate the Christmas party as exempt, making the summer event taxable (not just the £20 excess).

To manage the tax on the summer event, rather than having employees bear the burden, the employer can handle the tax and National Insurance via a PAYE Settlement Agreement.