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is a christmas party for a company's employees a taxable benefit for personal income tax

Compliance survey - Scored

Created a year ago
Relevant documents

Section 393B(3)(d) Income Tax (Earnings and Pensions) Act 2003 Employer-Financed Retirement Benefits (Excluded Benefits for Tax Purposes) Regulations 2007 S.I. 2007 No.3537 The provision of benefits relating to annual parties which have the character of relevant benefits can be excluded benefits in certain circumstances. The provision of an annual party or similar annual function is an excluded benefit if there would have been no income tax charge by virtue of s.264 ITEPA if it had been provided in the course of the former employee’s employment (see EIM21690).

Section 264 ITEPA 2003 Example 1 A company holds an annual Christmas party for all its staff. The average cost per employee is £50. This is exempt under section 264(2) ITEPA 2003 (see EIM21690). In addition the directors hold an annual party at Christmas for its directors at which the cost per head is £75. This function is not open to staff other than directors. Consequently it is not covered by the exemption because it is not available to staff generally. The full benefit is chargeable on directors attending. Example 2 A company holds 2 annual dinner dances open to all its employees in the tax year. The total cost of the first, including transport and accommodation provided for certain guests, was £10,000 including VAT. The total number of persons attending was 100 and the cost per head was therefore £100. The second dinner dance cost £8,000 including VAT, and 100 people attended this. The average cost was therefore £80. The total cost per head for both functions was £180 so they cannot both qualify for exemption under section 264(3) ITEPA 2003 (see EIM21690). Since the cost per head of each party on its own was not more than £150, either event can qualify for exemption on its own but it is more beneficial overall for the first to be exempted. So the benefits arising from that function will not be charged and those arising from the second function will be charged. For employees who attended: both events, they will be chargeable only on the benefit of £80 for the second event only the first event, there will be no chargeable benefit because that event is exempt only the second event, they will be chargeable on the benefit of £80. If the average cost per head of each of the functions exceeded £150 the full amount of the benefit of both functions would be chargeable. The £150 is not an allowance to be set against an amount that exceeds that figure. Example 3 A company holds one annual function in a tax year and does so virtually using IT. All employees are invited and each is provided with a hamper consisting of some food and drink to be enjoyed by the attendees during the party. The total cost per head is £100 which is within the £150 exemption and so the exemption applies.

S46 Income Tax (Trading and Other Income) Act 2005, S1299 Corporation Tax Act 2009 Staff entertaining is allowable One of the exceptions to the business entertaining rule concerns the entertainment of employees. Staff entertaining is allowable, so long as it is wholly and exclusively for the purposes of the trade and is not merely incidental to entertainment which is provided for customers (see BIM45034). For more information on how to establish the purpose of expenditure, see BIM37050. Where an employer provides a staff Christmas party, or a sporting event which is open only to employees, the expenditure is not disallowed by the legislation. However, it is still necessary to establish that the expenditure is wholly and exclusively for the purpose of the business. In practice, the definition of ‘employees’ is extended to include retired members of staff and the partners of existing and past employees. It does not include staff of associated companies or other companies in the same group. However, the costs incurred by a group parent where employees of subsidiary companies attend such an event and where the parent makes an appropriate recharge to the subsidiaries involved are allowable. Although the expenditure is allowable, the employees themselves may have to pay tax on the entertainment received and the employer will have to report this on form P11D. Further information about the employment income charge to the employee can be found in EIM21670 (meals) and EIM21690 (annual parties and other social functions). However, due to the difficulty in assigning the benefit accurately to the employees, many employers choose to include such items in a PAYE Settlement Agreement (PSA) and pay Income Tax and National Insurance contributions on behalf of the employees (see PSA1050). In the past, some employers preferred to add back allowable staff entertaining in the computation of their trading profits as an alternative to reporting benefits on forms P11D. You should not adopt this approach because it is incompatible with generally accepted accounting principles and the tax law on deductions. It is possible for a charge to arise on the employee even where the cost has been disallowed (in whole or in part) to the employer. For instance, if the scale of the entertaining is excessive. You should consider ‘excessive’ entertainment provided to employees in the same light as ‘excessive’ remuneration (see BIM37700 onwards).

You can get some company benefits tax free, including: meals in a staff canteen hot drinks and water at work a mobile phone workplace parking Christmas parties can also be tax free if they cost £150 or less per head and are open to all employees. Your employer might provide tax free childcare support, including childcare vouchers.

You can get some company benefits tax free, including: meals in a staff canteen hot drinks and water at work a mobile phone workplace parking Christmas parties can also be tax free if they cost £150 or less per head and are open to all employees. Your employer might provide tax free childcare support, including childcare vouchers.