The bar tab got a little out of hand!

With Christmas parties now a dim and distant memory many employers will be receiving their final invoices from the venue and the cost may have been more than anticipated. While the finance department are scratching their heads trying to reconcile this with their budget there may be tax consequences of this too.

HM Revenue & Customs (HMRC) allow an annual £150 tax-free limit per employee for staff entertaining. This £150 is the VAT inclusive cost, even if the employer can reclaim the VAT, and also includes incidental costs such as transport and accommodation.

To calculate whether the £150 limit has been exceeded the employer should simply take the total cost of the event and incidentals and divide this by the number of employees (and their partners) who attended the event, not the total number of employees.

To qualify for this tax-free benefit the event must also meet these conditions:

  • It must be primarily for staff entertaining;
  • It must be open to all staff; and
  • It should not just be for directors.

If the event does not qualify, or the £150 tax free allowance per employee has been exceed the full amount is taxable as a benefit in kind on the employee, not just the amount in excess of £150. This would need to be reported on forms P11D, or a PAYE Settlement Agreement would need to be agreed with HMRC.

It is also important to remember that the £150 is an annual allowance not per event.

If you would like to discuss this blog in more detail please contact Alex Gardner or call us on 01772 821 021.

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