Staff parties
The £150 limit is generally known by employers, and is a per head limit for annual functions and not per employee. So when employees’ spouses and partners also attend the event you can budget for £300 per couple within the concession. If the limit is exceeded then the whole cost of the event (not merely the excess) is subject to tax and National Insurance.
The limit applies to annual functions only, so a one-off event to celebrate the company’s 10th anniversary will not be covered. Also, where you have more than one annual function (e.g. Christmas party and summer ball) the combined total of both events cannot exceed £150 per head. If the cost per head was £80 at each event then only one would fall into the concession and the other would be taxable in full.
The cost of the event not only includes function room hire, food and drink but also taxis home, suit hire and any accommodation provided.
Staff gifts
There is also a tax concession for gifts provided to staff which can be classed as ‘trivial benefits’. In order to meet the definition of trivial, the gifts cannot be cash or cash-like (e.g. store vouchers) and not considered a reward for duties i.e. not linked to performance or results.
HM Revenue and Customs (HMRC) accept gifts such as bottles of wine or boxes of chocolates as within the trivial exemption, but care needs to be taken with larger gifts such as hampers.
We have routinely been able to agree gift values of up to £40 with local HMRC officers, but it should not be assumed that this is the case and prior agreement would have to be obtained in your own case.
There is a £50 limit that was being considered by Government and we would hope that this limit will be reconsidered from April 2016.
How to settle any tax?
If you do exceed the concessions on parties and gifts then employers typically look to settle the tax themselves on a grossed up basis through a PAYE Settlement Agreement or PSA. The scope of the PSA needs to be agreed in advance but the actual numbers do not have to be submitted until after the end of the tax year.
The cost of this can be expensive with effective rates of tax exceeding 80% for higher rate tax payers typically applying, albeit that the payment will be deductible for corporation tax purposes.
Other planning ideas
It is possible for Christmas parties to be combined with training events and conferences so that only the additional cost of the entertainment falls into staff entertaining and not the full cost of the event. Care does need to be taken that the underlying training or conference is itself allowable and that agendas, invites etc. are available in case of an HMRC enquiry.
This is more common in geographically diverse organisations where it is difficult for staff to meet up and formal events are often required. Do not think that this is an excuse to book a weekend at the Alton Towers Hotel and claim the costs are allowable. HMRC will scrutinise such costs in great detail and advice should be sought prior to the event if such an argument is to be considered.
If you have any queries about any of the issues raised in this article please contact us.