Having endured the Christmas party hangover, Bob Warren, our tax manager, examines the tax treatment of staff entertaining to ensure your party doesn’t deliver a New Year tax headache too!
Where an annual Christmas party or alternative annual function of a similar nature, such as an annual dinner dance is open to the staff generally, HMRC will not seek tax on the relevant benefit arising to each employee where the expenditure is up to £150 per head per annum. £150 per head means the total cost of the function, including VAT and any transport or accommodation provided by employer, divided by the number of people attending.
Where the cost of the entertainment is more than £150 per head, tax will be payable on the full amount. Where there is more than one annual function and their total aggregate cost exceeds £150 per head, the functions that total £150 or less in aggregate will not be taxed. Any other functions will be taxed in full.
Note that the exemption applies to any Christmas party or alternative function of a similar nature such as a dinner dance. The figure of £150 is not an allowance.
For functions which are outside the scope of the Concession (for example, where the function is not available to all employees), directors and employees are chargeable on the full cost per head, not just the excess over £150, in respect of both themselves and any members of their family and household who attend as guests.
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.
examples:
A company holds an annual Christmas party for its entire staff and their partners. The average cost of this is £120. This is exempt.
A company holds two annual dinner dances open to all its employees. The total cost of the first, including transport and accommodation provided for certain guests, was £5,460 including VAT. The total number of people attending was 42 and the cost per head was therefore £130.
The second dinner dance cost £6,424, including VAT, and 88 people attended this. The average cost was therefore £73.
The total cost per head for both functions was £203 so they cannot both qualify for relief.
Since the cost per head of each on its own was not more than £150 either event can qualify for concessionary treatment on its own.
It is more beneficial overall for the first event to be exempted, so the benefits arising from that function will not be charged and those arising from the second function will be charged.
other items…
Casual hospitality: for the avoidance of doubt, HMRC does not regard casual hospitality as constituting an annual party or function of a similar nature. Casual hospitality might include an employer buying a round of drinks down the pub, or the like.
Small gifts: where the cost of a gift (or gifts) an employee receives from the same third party donor in an income tax year exceeds £250, tax will be payable on the full amount.
Cash gifts: (excluding, in certain circumstances, long service awards) received from an employer will be chargeable to tax under general principles. Cash gifts should be dealt with under the PAYE procedure, not through the P11D.
Non-cash gifts: (turkeys, wine, vouchers, etc) are also chargeable, but should be dealt with on the P11D.
Meals & refreshments: where, for example, a company provides employees with free meals in the directors’ luncheon room the cost continues to be allowable but if meals etc are provided for a guest the cost applicable to the guest is strictly disallowable. (This, in contrast, to where an employee takes a customer to lunch at a restaurant, when the whole cost is in respect of business entertainment and is disallowable.)
The provision of sandwiches and the like for lunchtime meetings should be dealt with on similar lines.
and more on tax treatment of employee benefits…
mobile telephones
Mobile telephones are a popular tax-free benefit. The exemption is limited to one mobile phone per employee. For the exemption to apply, the employer must provide the mobile phone for the employee’s private use rather than reimbursing the costs of the employee’s own phone and the contract must be between the employer and the phone provider. However, the exemption does extend to the provision of a SIM card to be used in the employee’s own mobile phone.
childcare vouchers and employer-supported childcare
Employers can provide childcare vouchers and/or employer-supported childcare, such as a place in a private nursery, free of tax, providing that it is within the exempt amount. Employees who joined a scheme before 6 April 2011 are entitled to an exempt amount of £55 per week on which tax relief is given at the employee’s marginal rate of tax. Where the employee joined the scheme on or after 6 April 2011, the exempt amount depends on the employee’s marginal rate of tax as follows:
- £55 per week for basic rate (20%) taxpayers
- £28 per week for a higher rate (40%) taxpayer
- £22 per week for an additional rate (50%) taxpayer.
In each case the benefit is worth around £11 per week. Where care is provided in a workplace nursery, there is no limit on the exemption.
health screening and eye tests
Employers can provide employees with one health screening and one medical check-up per tax year without liability. A separate exemption applies to eye tests, which the employer is required to provide under Health and Safety legislation, and/or corrective glasses for using computer monitors.
small loans
Although a tax charge arises in respect of the provision of low interest and interest-free employment-related loans, an exemption is available for small loans, provided that the balance outstanding does not exceed £5,000 at any point in the tax year. In times of economic hardship this can be a valuable benefit, providing the employer with the means to help an employee over a difficult period without triggering a tax charge. However, a tax charge will arise if the loan is written off.
other benefits
There are many other potentially tax-free benefits available, including: tea, coffee and subsidised meals; employer-provided bicycles; zero-emission cars; car parking spaces; suggestion schemes; and long service awards.
For further information and advice on the tax-free benefits available, please contact us.
