As hard as it is to believe, but provide your staff with social events and the tax man wants his cut. Social events are declared on the employers P11d as a benefit resulting in a tax charge and you have to pay class 1a NIC on the total cost.
However, HMRC do have a bit of festive cheer and there are exemptions to this rule so that you can get a tax free social event. To be exempt, the party or similar social function must be all the following:
- £150 or less per head
- annual, such as a Christmas party or summer barbecue
- open to all your employees
This is an annual total so once the combined costs total more than £150 per head you pay National Insurance on the event that passes the threshold. Watch out – what this means is if the combined total comes to £151, the full amount of the event that goes over the threshold becomes a taxable benefit not just the extra £1!
The cost per head includes all costs related to the event. This could include food and drink, accommodation, travel to and from the event and any other costs related to the event.
Follow these simple rules and you can throw a party for your staff and have no reporting or tax liabilities and include the full cost as an expense in your business.
You may also be able to give festive gifts tax free. A little known allowance called Trivial Benefits allows you to give staff gifts tax free as long as they meet the following criteria:
- it cost you £50 or less to provide
- it isn’t cash or a cash voucher
- it isn’t a reward for their work or performance
- it isn’t in the terms of their contract
Who says the tax man doesn’t have a festive spirit!