It is great to finally have some hot and sunny days. Are you thinking of holding a summer party for your employees? But is your summer staff party tax and NI free?

What are the tax and national insurance implications?

Normally, business entertainment is not a tax-deductible expense.

However, the cost of entertaining your employees (including directors), for example, by having a staff party, is an exception to this rule. So you should be entitled to a tax deduction for the cost of such an event if you meet all the requirements.

The other main factors affecting the tax position of staff entertainment are the benefit in kind rules. Normally, if you provide employees with a perk it is likely to be a taxable benefit. But there are some exemptions that could apply. The main conditions of the exemption are:

• the party or similar is an “annual” event
• all employees are invited (but separate events can be held for different departments on different occasions)
• the average costs (including transportation and other related expenses) of the event, or events if there’s more than one in a tax year, per head for all employees and guests attending, does not exceed £150 including VAT.

For example,

Great Firm Limited holds two annual events which are open to all its employees. The costs per head for each event amount to £100 and £80 respectively.

As the total cost per head over the two events amounts to £180 i.e. over £150, the exemption cannot cover both events. So it is likely the first event of £100 would be covered by the exemption. For employees that attend:

• both events, they would be chargeable only on the benefit of £80 for the second event
• only the first event, there will be no chargeable benefit because that event will be exempt;
• only the second event, they will be chargeable on the benefit of £80

Further Reading:

Garden Office – Tax relief?