With the festive period fast approaching, we are often asked about the tax treatment of staff functions and parties, and what the employer’s reporting obligations are to HMRC.
As an employer, what you are required to report relies on a number of factors, including:
- If it’s an annual event
- If it’s open to all of your employees on the same basis
- If it costs more than £150 per head (Inc. VAT)
- How many events you provide during the tax year
Depending on these circumstances, employers may be entitled to a tax exemption, however a taxable benefit in kind will arise if:
- The £150 per head limit is exceeded (you must include all associated costs like taxi fares, accommodation costs etc in this calculation);
- The event is not open to all staff on the same basis; or
- It is not an annual function.
If you hold more than one annual event, they may still be exempt providing the combined cost of the events is no more than £150 per head inclusive of VAT and they are open to all employees on the same basis. However, if the total exemption has already been used, tax will be payable on the full cost of any additional events thereafter, regardless of their cost.
For events that fall outside the scope of the tax exemption, a taxable benefit in kind arises for the attendees on the full cost per head, not just any amount exceeding £150. The value of the benefit will be reportable on the employees’ Form P11D. Alternatively, as the employer, you can opt to bear the cost of the tax on the employees’ behalf by entering into a PAYE Settlement Agreement with HMRC. This means you do not have to complete a Form P11D for every employee attending the event.
So, remember that in amongst all the baubles and cheer, you still need to consider your Tax and National Insurance obligations at this time of year!
If you have any queries regarding the tax position in relation to social events, or would like to know more about PAYE Settlement Agreements, please contact a member of our dedicated Employment Tax team who will help you understand exactly what you must report.