6 November 2017

It’s approaching staff Christmas party time!

Ahead of the Christmas party season, we note some things to consider to ensure you account for any unexpected tax and national insurance liabilities.

Not wanting to bring down the mood, however, as we approach the festive season, filled with staff parties and gifts, we’d like to turn your attention to the potentially unexpected tax and national insurance (NI) liabilities of these.

When providing gifts or hosting events for your employees, it’s important you consider if this might result in any adverse tax consequences for both the employer and employee. If expenditure is planned in advance, this can be effectively managed and tax reliefs can be considered.

Staff parties

If the VAT inclusive cost of your annual staff party (or parties) exceeds the permitted cost per head limit (generally £150 per head) then all, or part, of the cost may be subject to tax and national insurance (NI). The cost of the event includes any function room hire, food and drink, transport and accommodation provided (not forgetting the VAT on these costs).

I think it’s safe to say that any tax liability for the employees attending might just take the shine off the occasion. However, one way for the employer to deal with any corresponding liability is via a PAYE Settlement Agreement (PSA), which we provide further details on below.

Staff gifts

Similarly, if you provide gifts to staff these may also be subject to tax and NI.

There is a tax concession for any gifts provided to staff that can be classed as trivial benefits. In order to meet the definition of trivial, the gifts cannot be vouchers with a cash value (e.g. store vouchers) and must not be linked to the employee’s performance or results. HMRC now also recognises that non-cash/voucher gifts of less than £50 are trivial and need not be reported.

However, if the gift is over £50 in value, is a store voucher or is in recognition of performance, the whole cost would be subject to tax and NI. As with staff parties, as long as there is prior agreement from HMRC via a PAYE Settlement Agreement (PSA), the corresponding liabilities can be settled by the employer.

PAYE Settlement Agreements (PSAs)

If employers exceed the exemption limits noted above, they might want to look to settle the tax themselves on a grossed up basis through a PAYE Settlement Agreement (PSA). Registration for a PSA needs to be agreed in advance with HMRC between 6 April in which the liability will occur and prior to 6 July following the end of the tax year in which the liability arises. The actual numbers and liabilities do not have to be submitted until after the end of the tax year on 5 April and prior to the payment date of 19 October.

PSAs can be financially expensive, with effective rates of tax typically exceeding 80% for higher rate tax payers, however the payment is deductible for corporation tax purposes.

If you would like to discuss your tax position ahead of the Christmas party season or the benefit of registering for a PSA, please do not hesitate to contact Shaun Young or Roger Campbell.

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