Employers planning a workers Christmas celebration danger tax calls for due to growing entertaining throughout the remainder of the yr, warns accountancy agency BKL. The official annual restrict for employees entertaining, set by HMRC, is £150 for every worker.
The important thing factors for an employer to think about earlier than they dig into their pockets are:
The “per head” determine is predicated on all attendees. If relations are invited and the determine exceeds £150, staff shall be taxable on the quantity allotted to them and their relations. For instance, 10 staff every carry a visitor to the Christmas celebration which prices £three,500. Every worker could be taxable on £350. The corporate would even have Class 1A Nationwide Insurance coverage (NI) to pay on the £three,500. Nevertheless, if the identical celebration had solely value £three,000 then the £150 a head exemption would apply (as a result of £three,000 divided by 20 equals £150) and there could be no taxable profit or NI obligation;
The exemption is cumulative over the yr. If the entire exceeds £150 a head, then the exemption may be allotted in essentially the most tax environment friendly method. For instance: annual agency “birthday” celebration costing £40 a head, summer time celebration costing £70 a head and Christmas celebration costing £100 a head. The cumulative whole of £210 exceeds the exemption, however through the use of the birthday celebration and Christmas celebration to absorb the exemption (a complete £140 per head), would depart solely the summer time celebration taxable on staff;
For occasions not falling inside the annual restrict the entire quantity is taxable on staff as a profit in form and P11Ds will have to be ready with the fee being allotted amongst staff;
Employer can even should pay class 1A Nationwide Insurance coverage on the entire at 13.eight%
An employer can settle staff’ private tax liabilities on their behalf, however then employers will owe NI on the entire value and on the tax settled. This is called a PAYE Settlement Settlement (PSA);
The VAT payable on workers leisure can usually be reclaimed, however not if it’s a accomplice or director solely occasion. If relations of staff are invited freed from cost then not the entire VAT may be reclaimed;
The £150 a head restrict is just related for the profit in form guidelines. Any quantities spent on workers entertaining shall be deductible within the employers enterprise tax computation.
“Sadly, the rising reputation of, for instance, ‘pizza nights’ and summer time drinks signifies that the restrict is commonly now reached lengthy earlier than Christmas, and that’s catching out unwary employers. The implications are appreciable. If the Christmas celebration does breach the annual restrict then the entire value of that occasion is taxable on staff as a profit in form. The employer additionally has to pay nationwide insurance coverage at 13.eight%,” warns Chris Smith (pictured above), Head of Private Tax Compliance at BKL.
This text was first posted on taxguide.co.uk on 26 November 2018