For employers throwing a Christmas party
The good news is that, unlike entertaining customers, some of the costs of entertaining employees are generally allowable against the profits of the business.
What falls into an annual function or the ‘Christmas Party’ allowance, as it is commonly known?
Well, as long as everyone from an office, location or area is invited, up to £150 per person attending can be spent on parties and other social functions each year. This is not then liable for income tax as a benefit in kind for the employee and the input VAT can be reclaimed by the employer. The £150 is, unfortunately, inclusive of VAT.
But beware, if the ‘event’ is deemed to be a reward, incentive or bonus the employer would not be able to reclaim the input VAT, on top of the employee being liable to tax as a benefit in kind.
Other staff events
- Training – The cost of providing training is fully allowable and the input VAT element can be reclaimed.
- Staff entertainment – When an employee goes out for lunch with a fellow worker, Director or Senior Partner to discuss business it is unlikely that the employee will consider this to be staff entertaining, but that is what it is in HMRC’s eyes. If only staff are present you must report it on the P11D or pay the tax through a PAYE settlement agreement.
- PAYE settlement agreement (PSA) – PSAs are a way for the employer to cover the tax and National Insurance Contributions on irregular benefits, such as staff entertainment in excess of £150, working lunches, social events and trivial benefits. The clients that we have who use this facility also see it as a way to pick up the PAYE on such payments where it would be difficult, impractical or just awkward for such items to be put through the payroll or on the P11D forms.
- Trivial benefits – You don’t need to pay tax or National Insurance on trivial benefits, and HMRC do not have to be informed when you provide trivial benefits to employees. However, the benefit will only apply if all the criteria are met. For example, the benefit cannot cost more than £50 to provide and must not be in the form of cash or a cash voucher; the benefit must also not be a reward for an employee’s work or performance and must not be in their terms of contract. All these criteria must be met for the benefits to be non-taxable.
For employees attending a Christmas party
Generally, as long as the total costs of your parties and other social functions that you have attended in a tax year are less than £150 (VAT inclusive) there will be no tax implications. In considering this limit make sure you have included all the costs, which may include not only the meal itself but also any drinks, transport and accommodation.
If the ‘event’ is deemed to be a reward, incentive or bonus then it will be liable to tax as a benefit in kind. Also, if the costs are above the £150 limit then it may be advisable to seek advice or contact us to discuss your specific situation.
We are a west of London based firm of chartered accountants with an experienced team of tax advisors who can provide advice for individuals and companies on tax efficient employee benefits and gifts. Contact us today to discuss your circumstances and how we can help.
Giving gifts to your staff? Read our article Making sure gifts to your employees are tax-free.