The weather has been fine of late and with sunshine, as Mungo Jerry attests, comes parties.

What better way for an employer to thank their hard working staff with a good old summer party full of warm beer and undercooked food.

While the employees dance the night away, the employer will have to eventually consider the biggest ‘non party’ word of all - tax.

An employer may spend up to £150 per head (inclusive of VAT) per year, in providing annual functions and events to entertain its staff. This amount has been around for some time, though that discussion is for another day.

Provided the £150 limit is not exceeded, there can be any number of parties, for instance five parties at a cost of £30 each – at various times of the year.

To calculate the cost of the benefit simply add together the cost of the party or function (room hire, food, entertainment etc), the costs of transporting staff and their guests, together with the cost of accommodation also provided.

The £150 is not an allowance and so if the cost per head works out at £152, then £152 is taxable as a benefit in kind and goes on your employees’ P11d, not £2

There are some conditions to satisfy:

1. The party has to be for all the staff, or if you have divisions or sections you may hold a party for that division or section, separate from the other ones.

2. There is no tax relief if an event is solely for directors and their families (unless you are the owner-manager, or a family company and you happen to be the only employee(s)).

3. Other guests may be invited too, but the primary purpose of the event must be that of entertainment for all the staff.