Planning a Christmas party for your team?
Here’s a reminder of the conditions for your event being exempt from income tax on your employees.
It’s the time of year when thoughts turn to celebrating the achievements of your team across the year – perhaps with a Christmas party or social get together after work. However, it’s important to understand your tax and reporting responsibilities and how these might differ depending on the type and scale of event.
To be exempt from tax and National Insurance, the event must be:
- Open to all employees;
- An annual event, such as a Christmas party or summer barbecue; and
- Cost £150 (including VAT) or less per person.
Open to all employees
It’s still ok to organise separate parties for different departments within a business, as long as all employees can attend at least one of them.
For businesses with more than one location, annual events that are open to all the team based at one location still count as exempt.
Multiple events
If you are organising more than one annual event in the same tax year, they will still be exempt – as long as the combined cost is no more than £150 (including VAT) per head.
Employers have to report and pay tax on the full cost of any additional events that tip them over the total £150 per head limit – even if they cost less than £150 per head on their own.
It’s important to note that the £150 is a threshold, not an allowance. Also, the employer can choose which events should be taken into account to make best use of the exemption.
When to pay tax
For any event that does not fit the above exemption criteria or trivial benefits exemption, these will need to be reported to HM Revenue & Customs (HMRC) and Class 1A National Insurance paid on the full cost of the event.
- Taxable expenses provided to employees can be reported to HMRC through your payroll software, with tax paid throughout the year; or
- If expenses are not payrolled, a P11D should be completed for every employee that has been provided with taxable expenses or benefits; and
- Class 1A National Insurance must still be paid at the end of the tax year on a P11D form in both instances.
PAYE Settlement Agreement
You might also want to consider a PAYE Settlement Agreement – this allows the employer to pay the tax for the employee. Please note, however, this can be costly in tax and National Insurance as the gift is grossed up for the employer paying the employee’s tax, before the tax and National Insurance is calculated.
How M+A Partners can help
M+A Partners’ team of experts work with clients to ensure available tax reliefs are understood and met where possible. We can also assist with PAYE Settlement Agreements.
To find out more about the tax planning services we provide, get in touch with your usual M+A Partners’ contact or contact myself using the below details.
