The festive season is upon us and although the first thought should not be of the taxman, he’s worth bearing in mind!
Most employers should be aware of the long-standing rules whereby staff entertaining (e.g. Christmas parties) are tax-free if the cost, including VAT, is not more than £150 per head. This ‘per head’ limit applies to employees’ spouses or partners, but it can sometimes be forgotten that it also and applies to cumulative events during the tax year! Therefore, if a staff summer BBQ cost £60 per head, up to £90 per head can be spend on a Christmas ‘do’ without being taxable on the employees.
You should note that the £150 limit also includes related costs such as transport to the venue and overnight accommodation, if paid for by the employer.
Be aware that if the total annual cost exceeds £150 for a particular employee, the full cost of the events that gave rise to the breach is taxable, not just the balance over £150. Explaining to staff in June / July that they’re getting taxed on last year’s Christmas Party could undo much of the goodwill from the party in the first place! This can be overcome by the employer entering into a PAYE Settlement Agreement (“PSA”) which enables the employer to pay for the income tax/NIC’s instead of the employee on a grossing up basis, which is often the practical way of dealing with this once the threshold has been exceeded.
A PSA can also be used where Christmas gifts are given to employees, such as hampers or vouchers.