Don't let tax be a party pooper this Christmas!
If you're booking an annual staff event, such as a Christmas party or summer BBQ, now is the time to look at how much you’re spending on each member of staff to avoid any nasty surprises from HMRC for your employees.
There is a £150 tax-free limit imposed by HMRC that an employer can spend per attendee on a Christmas party or similar annual function in each tax year. The cost must be calculated taking into account all expenditure including meals, drinks, travel, entertainment and overnight accommodation relating to that function. VAT must also be included even if you later recover part or all of this cost.
If you put on several staff events throughout the year, each event must firstly be calculated on a cost per attendee basis, and to remain free of tax and NIC, the total average costs added together cannot exceed the £150 – if it does, all/any events which exceed the annual limit become potentially create a taxable benefit for each individual. We say potentially as we also have the new “trivial benefit” exemption which, in limited circumstances, can then also be used to potentially cover these additional costs. The rules as to when this additional exemption can be utilised are not, however, straight forward and so we suggest you contact us to determine matters in more detail.
This additional work is worthwhile as most employers would seek to avoid employees receiving a P11D benefit in respect of staff events and you can of course, settle the tax and NIC liabilities on behalf of your employees, through a PAYE Settlement Agreement (PSA) directly with HMRC. Be warned, however, as the cost of this is high – for a basic rate employee you will need to settle tax and NICs totalling some 82% of the original costs.
To clarify, here are three scenarios to consider:
- One lavish annual party and the total exceeds £150 per head – the full amount is charged to tax and NIC, not just the excess, and must be reported either on Forms P11D or processed through your PSA.
- Put on two or more parties in a year and the total exceeds the £150 limit, then you can choose whichever function is exempt. The second function may still be exempt subject to the “Trivial Benefits” rules.
- Put on two or more parties and the total comes in under £150 per head then there is no tax liability nor reporting obligation at all.
Please don’t hesitate to contact us should you have any queries about Christmas party benefits or other aspects of employment tax.
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Confluence Tax is the only UK tax advisory firm to provide advice to businesses and individuals purely within the technology and biotechnology industries. Confluence Tax offers biotech companies across the UK and internationally advice on tax issues including R&D tax credits, the patent box, structuring a new company, startups, company exits and share scheme options.