The festive season is upon us and, for most, it is an opportunity to party and celebrate the year’s achievements. Your employees have worked hard all year and, as a caring and generous boss, you would like to say thank you for everything they have done.
You are aware that there is a £150 exemption on PAYE and NIC for an ‘annual’ event to which all employees are invited.
This exemption is £150 per actual attendee and includes food and drink (whether as part of a package or otherwise), travel and accommodation costs. Partners or guests of employees are also counted as ‘employees’ when calculating the cost per head. Unfortunately, this is an exemption, not an allowance and therefore if you exceed this threshold the whole cost becomes taxable.
The Night Out
As a genius boss you have stumbled across an all-inclusive party night for your 7 employees at a total of £80 per head. The celebration starts early with drinks in the office, followed by taxis to the venue and (of course) a couple of bottles of bubbly on the table. The evening progresses with a cab trip to a nightclub, cocktails and more drinks charged to the company credit card! In the early hours taxis are provided to take staff home or to the hotel for those that don’t live locally.
The morning after…
You wake with a bad head, a wallet full of receipts, a hefty credit card bill and various invoices covering:
Food/drinks package £560
Taxis throughout the evening £133
Hotel Accommodation £180
Champagne £50
Drinks £130
Entrance to club £25
The final total cost of the party was £1078 (£154 per person) – exceeding the permitted maximum of £1,050. The hangover is nothing – now your headache really sets in!
Your seven staff members are made up of two 40% taxpayers and five 20% taxpayers. Thus the total cost is attributed as:
£308 to the Higher Rate (HR) taxpayers
£770 to the Basic Rate (BR) taxpayers.
HR tax liability is (£308 @40%) £205.33
BR tax liability is (£770 @20%) £192.50
Unfortunately the tax calculated will then be subjected to a further increase because the tax borne by you as a benevolent employer, and which would otherwise be paid by your employees, itself becomes a taxable benefit. This additional calculation takes into account the tax rates of the recipients and this results in the above total of £397.83 transforming itself into the higher figure of £518.46.
And this is not the end of your sorry tale – we must now apply National Insurance to the cost of the event and the final tax as calculated. At the current rate of 13.8% this gives further cost of £203.66.
Thus the final total cost to the employer is:
The cost of the event £1,078
Tax £518.46
NICs £203.66
Total £1,800.12(£257.16 per person)
Had expenses been controlled, and had the cost of the event been £28 less then there would be no tax/NIC liability at all.
And the moral is… eat, drink and be merry… but be mindful of that limit… the tax cost is high!
Merry Christmas and A Happy New Year from The Edge Tax Team!
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