One of our frequently asked questions is around staff entertainment – Christmas parties, drinks in the pub, summer social, meals out. We’re going to cover some of the most common situations that we come across with our small business clients – there are obviously many more scenarios so if you are unsure of the tax treatment of something, always check with your accountant (or HMRC if you don’t have one).
What is Exempt?
Firstly we are going to cover what is exempt. For an event to be exempt from any reporting to HMRC (and thus not require any tax or National Insurance to be paid), it has to be an annual event (HMRC give the example of a Christmas party or a summer BBQ), cost less than £150 per person, and be open to all employees. The £150 per person is an annual exemption, not per event. This means if you have both a Christmas party and a summer BBQ, the total spend per head has to be less than £150 in a tax year. This is an exemption and not an allowance. If the spend per head exceeds £150, the whole amount becomes reportable. There are a number of things to consider with this rule:
- The tax manual also states that the term ‘annual’ suggests a recurring event, and thus cannot be used against a one-off celebration such as a 25th anniversary.
- The figure of £150 per head can be used for members of an employee’s family and household who attend as guests.
- You can also include the cost of travel and accommodation in the £150 amount.
- The £150 amount must include VAT (ie the gross cost is £150 or less)
- There are some examples on the HMRC tax manual here which provide a fairly broad section of events.
What isn’t Exempt?
Anything that isn’t covered in the section above, needs to be reported to HMRC. The cost of the event is then reported to HMRC, and both the employer and the employee will have National Insurance to pay. The amount reported will be the cost per head.
Some examples we’ve seen that would not be allowable (and we have to find alternative solutions)
- Managers taking their team to the pub on a Friday and buying a round of drinks on the company card (Either file as a benefit in kind for the team, or post as a personal expense to a director via the directors loan account)
- Directors going for dinner for non-business purposes (directors loan account)
- Buying takeaway coffees for a few people on the way to the office (directors loan account or trivial benefits)
- Spending a day working in a café to escape noisy children during holidays (directors loan account)