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Q: Is the Christmas Party a taxable benefit? A: If you provide one annual function for employees, no charge to tax arises provided that the average cost of the event per head does not exceed £150. If the average cost per head does exceed £150, the full amount of the benefit of the function will be chargeable to tax.

The cost of the function includes VAT and the cost of any employer-provided transport or overnight accommodation. To calculate the cost per head, the employer should divide the total cost of the function by the total number of people who attended, including any non-employees, and not by the total number of people actually invited. The figure of £150 is not an allowance. With regard to events that are outside the scope of the exemption, employees are chargeable to tax on the full cost per head, not just on the excess over £150. To give an example, if a Christmas party costs £100 a head and a summer barbeque and disco costs £60 a head, the Christmas party will be exempted (as this makes better utilisation of the exemption) but the barbeque and disco will be chargeable to tax in full, not just on the excess over £50. Thus, in this scenario, the employees will be chargeable to income tax on the benefit of £60, not £10. Finally, it is the event that is exempt, not the employee. In the example cited above, if an employee chose not to attend the Christmas party but did attend the summer event, he or she would still be chargeable to income tax on the benefit of £60 because this event is not exempt. The fact that he or she failed to attend the event that was exempt is irrelevant.

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