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If you are involved in organising business entertaining or staff events in your practice, considering the tax issues should be part of your event planning process. This may sound strange, but the tax issues arising from business entertaining and staff events are complex, so careful structuring of your event is imperative to minimise the risk of making an expensive mistake.
Everyone is aware that wages and salaries, ie cash payments, suffer tax under pay as you earn (PAYE) and national insurance contributions (NIC). However, employees can also be taxed on any non-cash ‘payments’ they receive as a result of being an employee, eg a company car, as a taxable benefit.
The definition of a taxable benefit is very broad and includes almost anything an employer provides for an employee. Not surprisingly, business entertaining and staff events attract particular attention from HMRC. If taxable benefits have, in the eyes of HMRC, been supplied, tax is technically due from the employee concerned, who is deemed to have benefited by reason of his or her employment.
So, when can a taxable benefit arise? Possibly at any event when the primary purpose is entertaining staff. This could include staff social functions, such as Christmas parties, and even the humble working lunch (where employees may not perceive that they are being entertained!)
For an annual staff party, current legislation provides an exemption of £150 (ie £125 plus VAT per employee), which can be spread over a number of events in the same tax year provided that each event will be recurring annually. HMRC will carefully examine any staff party expenditure to see whether all related costs have been included and that the legislation has been complied with.
In order to qualify for the exemption, any event should be open to all staff employed at a particular location. However, if one group of employees also has an additional exclusive Christmas event, this will be a taxable benefit: because not everyone in the organisation at that location can attend, it does not fall within the terms of the tax relief, whatever the cost.
What happens if a single event is more than £150 per head, or more than £150 per head is spent during the tax year? In the first instance, the event becomes taxable in full; in the latter, if one event is under £150 per head, the second event would be taxable in full on the employees attending. So stay within the terms of the tax break, if you can. However, your organisation will still get a business tax deduction, and you will be able to recover VAT in full regardless of the cost per employee, provided the purpose of the event is to reward good work or maintain and improve staff morale.
If you also want to make seasonal gifts to staff, these may be treated as an exempt ‘trivial benefit’ if the value is below £50, but there are a number of conditions to be met.
For more information on the tax issues with staff entertaining, download BDO’s guide.
For help and advice on your tax position please get in touch with our team.