christmas parties
Don’t let the tax man spoil the Christmas festivities
S
ummer time is often when companies start to think ahead to the Christmas party season. Hotels, clubs and restaurants will already
have their menus and price lists confirmed and businesses will be soon be on the hunt to secure the perfect venue at the best rate to reward employees for their hard work. Elliott Buss, tax manager at Newport-
based UHY Peacheys, explains the tax traps that employers need to avoid when planning their office Christmas party. “The office Christmas party is an
opportunity for staff to let their hair down after working hard all year, and a chance for employers to reward their efforts and enjoy a Christmas tipple themselves. One way to instantly kill the Christmas spirit is incurring additional tax as a result of over-spending at the annual bash. “It is important for employers to know
the score, to avoid any costs being passed onto staff as a taxable benefit. Sticking to a strict budget and not forgetting to calculate additional party costs, such as taxi journeys is the most effective way of avoid tax pitfalls. “Firstly, according to HMRC, employers
can spend up to £150 per head for annual staff events, without it being treated as a taxable perk. Exceeding this amount by just one pound will mean that the whole £151 is taxable to the employee. Employers do however have an option to complete a PAYE settlement agreement in which they pay the 46 THEbusiness QUARTER
tax and National Insurance. “Spending £160 per head on a party,
where staff members are higher- rate taxpayers, will result in a tax bill of around £140. This means that a £160-per-head party can mushroom to almost £300 per head. Forgetting to shut an open bar is a common trap which can land businesses with yuletide tax bills. Another trap is forgetting that costs such as accommodation and transport must be included as part of the £150 limit or it will be subject to tax. “There is some good news however.
Employers are allowed to reclaim VAT on hosting annual staff events and the £150 per head applies to everybody that attends the party including spouses, partners and even customers if they are invited to a predominately staff event. The same rules and limits do not however apply to parties hosted for clients and sub-contractors and a business will not be able to recover VAT in those cases.
Tis the season for giving “Generous bosses should also beware if they decide to give gifts to their staff at Christmas, as the HMRC guidelines are fairly vague and open to interpretation. “Providing your staff with a Christmas
ham, bottle of wine or box of chocolates is not likely to trigger much interest from HMRC as it is considered a ‘trivial gift’. If the cost of the gift is more than £50 it should be
declared on the P11D form and the output VAT on those gifts will need to be worked out and included on a VAT return to HMRC. “If an employer gives vouchers as a
gift then it is subject to tax and National Insurance on the employee as it is a cash transferrable item. “Christmas bonuses are a slight exception
and not considered as a seasonal gift. Bonuses are treated as ordinary earnings and are subject to PAYE and National Insurance, as with all additional salary.
Tis the season to be jolly “The Christmas party should be a happy occasion and a way to see out the year in style. If staff get stung with additional tax bills, it could leave a bitter taste in their mouths and overshadow the initial good intentions. “If in doubt about where you stand
with the tax man when you plan your party, it is always worth consulting with a tax professional or directly with HMRC. Knowing the limits and exemptions will help businesses avoid tax traps over what is already an expensive time of year.” • Elliott Buss is tax manager at UHY
Peacheys Chartered Accountants. UHY Peacheys is part of the top 20 accountancy network, UHY Hacker Young. The firm operates offices in Newport, Abergavenny and in Bristol under the UHY Hacker Young brand.
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