Are your thoughts turning to those lazy hazy summer days and organising a social event for your staff? Or perhaps you are super organised and already thinking about the office Christmas party. Whichever it may be, don’t forget the tax man will have something to say about it. I’m not sure who the summer equivalent of Scrooge is, but there is a limit to HMRC’s generosity in allowing businesses to lavish hospitality on their staff.
That limit is £150 per head per tax year and hasn’t changed in 14 years so is worth approximately £75 less than it was in 2002.
Provided the cost of an annual staff function is less than £150 per head there is no tax consequence, but exceed the limit then the whole of the cost per head of the function is a taxable benefit in kind for each employee attending.
It should be noted that the £150 limit is the cost per head and not per member of staff attending so other guests can be included in the head count. The limit can be applied to more than one function so can cover both a summer and a Christmas party.
The exemption does not apply to all staff entertaining. For a function to fall within the exemption it needs to be an annual event open to all staff to attend. Strictly an annual event should be one that is held annually, but in my experience HMRC interpret this fairly loosely and will allow events for special one off occasions as well. If your business has more than one location, an annual event that’s open to all of your staff based at one location still counts as exempt. You can also put on separate parties for different departments, as long as all of your employees can attend one of them.
Where the limit is exceeded or there are staff entertaining costs which are not covered by the exemption it is common for businesses to arrange a PSA (PAYE settlement agreement) with HMRC to pay any tax which would otherwise be payable by the individual staff members. A PSA is fairly easy to arrange and the tax won’t be payable until 6 months after the end of the tax year so you can enjoy your party and worry about the tax bill a lot later!