With the festive season fast approaching, we thought it would be the perfect time to remind you of the tax implications of workplace parties.
The good news is that, unlike entertaining customers, the costs of entertaining employees are generally an allowable deduction against the profits of the business for tax purposes.
But what about the tax consequences for the employees themselves? Will they have to pay tax on the benefit?
Generally, as long as the total cost of all employee annual functions in a tax year is less than £150 per head (VAT inclusive) there will be no tax implications for the employees themselves. In considering this limit, it is necessary to include all the costs of an event, comprising any food, drinks, entertainment, transport and accommodation that the employer provide.
If the total cost is above the £150 per head limit then the full cost of the benefit will be taxable on the employee. In this case, it should be reported on each employee’s P11D or, alternatively, the business may choose to enter into a PAYE Settlement Agreement with HMRC to cover the tax.
It is also worth noting that an exemption in relation to employee entertaining was introduced on 6 April 2016. From that date, a benefit provided by an employer to an employee will be exempt from tax and need not be reported to HMRC on a P11D if all of the following conditions are satisfied:
- The cost of providing the benefit does not exceed £50;
- The benefit is not cash or cash vouchers;
- The employee is not entitled to the benefit as part of any contractual obligation; and
- Where the employer is a close company, and the benefit is provided to an individual who is a director or other office holder of the company (or a member of their family), the exemption is capped at a total of £300 in the tax year.
Please get in touch with your usual Ryecroft Glenton contact on 0191 281 1292 if you would like to discuss any of the above in further detail.