Businesses planning to treat staff to a festive party this Christmas are being warned not to end up with a tax hangover by overspending on the event.
Tax specialist Richard Whitelock from accountancy firm Azets says it is easy to fall foul of tax legislation regarding exemptions – and if a slip-up over expenditure means staff end up paying a share of the costs to the tax authorities as a ‘benefit in kind’, then companies will get a reputation for being Scrooge-like.
To be exempt from tax and National Insurance, parties or similar social functions – including online or virtual parties – must be open to all employees, annual in nature (such and cost £150 or less per person.
Richard said: “It has been a tough year in many respects so it is only natural that those businesses able to afford it will want to reward hard-working staff with an all-expenses-paid, morale-boosting celebration at Christmas.
“However, while there is usually no need to inform the tax authorities of such events, business leaders and directors need to tread carefully to avoid overspending and having to report the tax implications to HMRC.”
He confirms to work out the total cost of such events, businesses need to include not only the cost of the function itself, but any associated costs such as travel, taxis, or hotel accommodation. All costs must be inclusive of VAT, and £150 is a cost per head – so divide by the total number of attendees (not necessarily the number of employees).
He added it should be noted that the £150 was an exemption and not an allowance and that the whole cost would be subject to tax and NI if the figure was exceeded, even by just £1.
