Employer annual function exemption not as simple as it seems
Lately, there's been somewhat of a surge in social media content stating that businesses can spend up to £150 per employee on staff entertainment tax-free. While this is rooted in genuine guidance, the reality is more nuanced - and misunderstanding the rules can result in unexpected tax liabilities.
What you need to know
The so-called "staff entertainment allowance" is not actually an allowance, but an exemption provided by HMRC. It allows employers to spend up to £150 per employee per tax year on annual staff events without triggering Income Tax or employer National Insurance charges - provided specific conditions are met.
This can be spread across multiple functions as long as the total spend doesn’t exceed £150. If the total cost per person exceeds £150, even by £1, the entire amount becomes taxable, not just the excess.
The value of such events is calculated by adding the cost of the function plus associated travel, such as taxis, or hotel accommodation (all VAT inclusive) , then dividing by the total number of attendees – not just the number of employees.
To qualify for the exemption, all of the following conditions must be met:
- The event must be annual (e.g., a Christmas party or summer BBQ).
- It must be open to all employees, or to all staff at a particular location.
- The total cost per head across all qualifying events in the tax year must not exceed £150.
This exemption applies to both in-person and virtual events, but HMRC expects detailed records and accurate cost breakdowns.
Why it matters
Misapplying the exemption could result in unexpected taxable benefits for employees and National Insurance liabilities for your business.
It’s important to not rely solely on headlines or viral social media posts. The rules can be more complex than they appear, and the consequences of getting it wrong can be costly. Speak to an employment tax specialist to ensure you're applying the exemption correctly.
We are here to help
If you’re unsure whether your business is applying the exemption correctly, or have any questions around what records you should have in place to support, please get in touch with a member of our specialist Employer Solutions team.