Did you know that staff events are a tax-free benefit? To find out more information about the conditions then please read below.
What are the conditions?
A staff event will qualify as a tax-free benefit if the following conditions are met:
- The event must be open to all employees, or to employees at a particular location, if the employer has numerous branches or departments
- The event must be held for the purpose of entertaining staff
- The total cost must not go over £150 per head, per year
The ‘cost per head’ of the event is the overall total cost of (including VAT):
- The event, and
- Any transport or accommodation incidentally provided for persons attending it, divided by the number of those persons
What is the limit?
The £150 per head limit can be used over a number of parties or events during the tax year.
So, for example you could have three events at £50 per head.
You should be aware that the £150 is a limit, so it cannot be exceeded. If you decide to have two events and one goes over the limit, then you must report this to HMRC as it will be taxed as a benefit-in-kind.
What happens if the limit is exceeded?
There is no limit on the amount that an employer can spend on an annual function, but if the staff party costs more than £150 per head, then the cost will be an annual deduction.
This will mean that your employees will have a liability to pay tax and National Insurance Contributions as it is a benefit-in-kind.
Tax treatment for employers
Staff events are tax deductible for the business, expenses for staff events will be shown separately in the business accounts as ‘staff welfare’ costs.
You as an employer can agree to settle any tax charges that arise to your employees by using HMRC PAYE Settlement Agreement (PSA), which means that the benefits will not be taxed under PAYE.
You should know that as an employer the tax liability under PSA must be paid to HMRC by the 19 October the following tax year.
What do I need to know?
You should be aware that the full cost of staff parties and events are eligible as a tax-free benefit if they do not exceed the £150 per staff member limit. You should know that if it is found that the events are for customers then tax will be disallowed.
Get planning the next staff event! You can go all out and treat your staff, as you now know the conditions of what is eligible for it to be a tax-free benefit.
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