Parties can be a tax-efficient way of rewarding employees. This is because, according to the HMRC, employees and their partners do not pay tax and national insurance on any parties they attend if the cost to the business is less than £150 per head in the tax year (starting 6th April). 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. The event must be made available to all employees or (if you have more than one location) all those at a location.
There are some things you need to be aware of though. If the cost per head of a single party is greater than £150, then the whole amount would be subject to tax and NI. For example, if the cost of a party averages out to £175 per head the employee is taxed on the full amount (and if they have a partner then they would be taxed on a benefit of £350). In another scenario if the employer laid on 3 parties over the course of the year costing £100 per head then £70 per head then £45 per head, then tax and NI would be levied on the £70 party. Though the £100 and £45 parties would be covered by the £150 annual exemption, the £90 party wouldn’t and so the whole event was taxable. This page http://www.hmrc.gov.uk/manuals/eimanual/EIM21691.htm has further examples of when parties may not qualify for the exemption.
Licenced Accountant in Brighton