Particular benefits: annual parties and other social functions
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Section 264 ITEPA 2003
Directors and employees, except for tax year 2015 to 2016 and earlier those in an excluded employment (see EIM20007), are chargeable on their share of the expense incurred by an employer in providing a social function for employees, except where section 264 ITEPA 2003 exempts the charge to tax.
The exemption applies to an annual party (for example, a Christmas party), or similar annual function (for example, a summer barbecue), provided for employees and:
- available to employees generally or
- available to employees generally at one location, where the employer has more than one location.
The general meaning of “annual” in the context of section 264 ITEPA 2003 is that it is something that happens once a year on a recurring basis and it follows from this that a one-off event, for example a party to celebrate a 25th anniversary, cannot be an annual party or function.
Where an employer organises its workforce at one site into separate sections or departments, an annual party may be provided separately for the different sections (e.g. separate wards in an NHS hospital trust). As long as a party is available generally to all staff at the site, and the other conditions are satisfied, the exemption may apply.
If the employer provides one annual function for employees no charge to tax arises if the cost of the event per head does not exceed £150 (until 5 April 2003 the figure was £75 per head).
Two or more functions
If the employer provides 2 or more annual parties or functions, no charge arises in respect of the party, or parties, for which cost(s) per head do not exceed £150 in aggregate. Where there is more than one annual function potentially within the exemption, we do not expect employers to keep a cumulative record, employee by employee, of functions attended. But for each function the cost per head should be calculated. The cost per head of subsequent functions should be added. If the total cost per head goes over £150 then whichever functions best utilise the £150 are exempt, the others taxable (see examples at EIM21691).
Exemption not allowance
The figure of £150 is not an allowance. For functions that are outside the scope of the exemption (see example at EIM21691) directors and employees, except for tax year 2015 to 2016 and earlier those in an excluded employment, are chargeable on the full cost per head, not just the excess over £150, in respect of:
- themselves and
- any members of their family and household who attend as guests.
The cost of the function includes VAT and the cost of transport and/or overnight accommodation if these are provided to enable employees to attend. Divide the total cost of each function by the total number of people (including non-employees) who attend in order to arrive at the cost per head.
(See examples at EIM21691.)
Where an annual function is provided virtually using IT then the exemption is capable of being met provided all other conditions are also satisfied as the exemption applies to allow for costs of provision which are generally incurred for the purposes of the event itself.