FINANCE


Stay one step ahead of staff party tax traps


With Christmas party bookings already being made and late summer balls still taking place, staff entertainment is an area of taxation that businesses should ensure they have a clear understanding of. Leicestershire chartered


accountants Newby Castleman has outlined the tax rules around annual staff events and highlighted a few ways in which businesses can avoid being caught out. At a glance, the rules


surrounding staff parties appear to be fairly straightforward: if the function is an annual event, is open to all staff and costs up to £150 per head per year, there are no tax or National Insurance (NI) implications and nothing needs reporting to HMRC. Where employers tend to slip up,


however, is failing to interpret these rules strictly enough. The £150 figure is the limit per


head per year, not per event. This means that even if the cost of a company’s annual event, or events, tips over this amount even marginally, the exemption will no longer apply and the total function costs will be a taxable employee perk. This is because the £150 is a


limit, not an allowance. Crucially, the £150 per head


exemption must include VAT and account for all costs involved in enabling staff to attend the function, including transport and accommodation. Other criteria


are worth bearing in mind, too: the event in question must recur annually and all staff members must be invited. The total cost per head must be calculated by dividing between those who actually attend the annual events, as opposed to those invited. Should the total cost of a


business’ annual staff entertainment functions exceed £150 per head, the whole amount becomes a taxable benefit on the employee and must be reported by the employer on a P11D. The business will also have to pay Class 1A NI on the total sum. Annalise Lovett, Partner at


Newby Castleman, said: “The £150 exemption may seem easy enough to stick to, but the costs can quickly add up, especially when having to include VAT in the calculation.


‘The £150 exemption may seem easy enough to stick to, but the costs can quickly add up’


“Slip-ups such as forgetting to


account for the cost of taxis to and from an event, neglecting to factor in a hotel booking or failing to bear in mind the costs of a second annual function, can mean the £150 limit is unintentionally exceeded. “We would advise all businesses


Annalise Lovett


getting ready to organise their annual staff party, awards ceremony or other entertainment event to bear these criteria in mind when calculating costs.”


Tax avoidance rules for contract workers


Updated legislation designed to combat tax avoidance by freelance workers in the private sector comes into force in April. The Leicester office of financial and business


advisers Grant Thornton says local businesses should ensure they have the right processes in place well before the April 2020 introduction, to avoid falling foul of HM Revenue & Customs. Commonly known as IR35, the ‘Off-Payroll Workers’


(OPW) rules were first introduced in 2000 to prevent freelance or contract workers providing services through their own limited company, but in reality acting like an employee, and therefore not paying the


same National Insurance (NI) contributions on their earnings as a permanent employee would. IR35 initially placed responsibility on the worker to


determine their employment status, but following concerns from HMRC that only a small percentage were complying, in April 2017 the regulations changed for the public sector and the onus shifted to the employer. From April 2020, the same rule will be applied to all


medium and large organisations in the private sector and, based on lessons learned across the public sector, Grant Thornton says it is vital for employers to prepare now. Bethan Gill (pictured), Associate Director at Grant


Thornton, said: “The number of freelancers in the UK rose by 18% in 2018 alone and there are now an estimated two million OPW operating across the country, so it’s likely many private companies across all sectors will be impacted by the new IR35 regulations.” When IR35 changed for the public sector,


organisations were given just four months to prepare. To overcome uncertainty, some adopted a blanket approach and included all contract workers on their payroll. Bethan added: “Thankfully private sector businesses


have been given longer to adapt, but the clock is still ticking to establish the necessary processes and controls. Leaving it too late could be costly and put companies at risk of investigation by HMRC and subsequent financial penalties.”


78 business network September 2019


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