Monday, December 07, 2009 | Posted by: Francesca Lagerberg
Categories: Business advice, Tax | Tags: tax, employee entertaining, staff entertaining, entertaining, tax implications, Christmas party, office party, xmas
With daylight only being seen through the office window and the recession dragging its heels, the annual Christmas bash becomes a hopeful glimmer on the horizon. If you have been given the unenviable task of organising the Christmas party, or the scrooge like task of setting the budget this year, perhaps you should consider the tax consequences first.
The office Christmas party rounds off what, for many, has been a difficult year and gives a chance for staff to relax and enjoy themselves. With the boost to staff morale weighing against ever tightening budget constraints, you may be considering how much you should spend this year or even if you should have one at all!
Here are some of the tax issues a company should consider (if you are a sole trader or partnership, the rules may be slightly different):
• Corporation tax - generally entertaining is a disallowable expense. However employee entertaining, as long as it’s not incidental to the entertainment of others, is specifically allowed.
• VAT - generally input tax on entertaining is blocked , however, as above, employee entertaining is not. The definition of employees for VAT purposes does not include partners of existing staff or former employees. Therefore if your party includes guests, you will need to apportion the relevant costs appropriately for VAT.
• Benefits in kind - for benefit in kind purposes, employee entertaining does have a limited exemption if the annual party costs are under £150 per head. If the cost of the annual parties goes over £150 then unfortunately all the costs (not just the costs above £150 per head) are taxable as a benefit in kind. This means that either the benefit will need to be reported on each employee’s P11D, or alternatively, the grossed up tax can be paid by the employer through a PAYE settlement agreement. This could mean that if the total cost is £160 then by the time you have included the additional National Insurance liability on the employer, you could be paying over £300 per head!
• Trivial Christmas gifts - if a Christmas party is beyond the budget this year (like the BBC employees who are going to have to pay for their own ) it may be worthwhile to note that an employer may provide employees with a seasonal gift, such as a turkey, an ordinary bottle of wine or a box of chocolates at Christmas. All of these gifts are considered to be trivial and as such are not taxable.
So now you know the ins and outs, I hope you have the best Christmas party possible. And if you didn’t know already, there’s not many shopping days to Christmas…is it me or does it seem to come round quicker every year?!