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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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Particular benefits: annual parties and other social functions: examples

Section 264 ITEPA 2003

Example 1

A company holds an annual Christmas party for all its staff. The average cost per employee is £50. This is exempt under Section 264(2) ITEPA 2003 (see EIM21690).

In addition the directors hold an annual party at Christmas for its directors at which the cost per head is £75. This function is not open to staff other than directors. Consequently it is not covered by the exemption because it is not available to staff generally. The full benefit is chargeable on directors attending.

Example 2

A company holds two annual dinner dances open to all its employees in the tax year. The total cost of the first, including transport and accommodation provided for certain guests, was £10,000 including VAT. The total number of persons attending was 100 and the cost per head was therefore £100.

The second dinner dance cost £8,000 including VAT, and 100 people attended this. The average cost was therefore £80.

The total cost per head for both functions was £180 so they cannot both qualify for exemption under Section 264(3) ITEPA 2003 (see EIM21690). Since the cost per head of each party on its own was not more than £150, either event can qualify for exemption on its own but it is more beneficial overall for the first to be exempted. So the benefits arising from that function will not be charged and those arising from the second function will be charged.

For employees who attended:

  • both events, they will 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 is exempt
  • only the second event, they will be chargeable on the benefit of £80.

If the average cost per head of each of the functions exceeded £150 the full amount of the benefit of both functions would be chargeable. The £150 is not an allowance to be set against an amount that exceeds that figure.