Employee Entertaining
We want to remind you about the tax rules surrounding this as we have recently have had a couple of clients fall foul of the limits.
Whilst all employee entertaining is tax deductible for the employer it is not necessary tax free for the employee.
To be exempt the functions must be:
- Annual – like a Christmas party or summer BBQ. A one-off event to celebrate say 10 years in business may not be eligible. More than one annual even can be eligible if other conditions are met
- Open to all employees (or, all employees at one location if you operate from different sites). Different departments can have different functions so long as all employees can attend one.
- The combined cost of the event is no more than £150 per head. This is calculated at total cost of the function (tickets, food, drink, transport & accommodation) divided by the number of people attending.
Note that the £150 is a limit not an allowance. If this limit is exceeded the whole amount is taxable on the employee by being declared on P11Ds after the year end and the employer has Class 1A to pay on the total.
So, keep an eye on this or it can be quite costly, and you may have disgruntled employees who find themselves with a tax bill!
Where there is more than one annual function the £150 can be allocated to give the best overall position but it can only cover whole functions (as mentioned it is not an allowance).
Example
A Ltd holds 3 functions a year for staff. The details and costs are:
- May Ball – £100 per head
- Fireworks Party – £25 per head
- Christmas Party – £45 per head
So, the May Ball and Christmas Party can come under the exemption with just the Fireworks Party taxable (but the unused balance of £5 is wasted).
Guests – beware if employees can take a ‘plus one’ as, if the function is not exempt the employee will be liable to tax on the guest ‘cost per head’ as well, so it may be better to exempt different functions.
Example
B Ltd hold 3 annual events, the details are:
| — | Guest Allowed | Cost per head | Taxable if not exempt |
| Valentines Disco | Y | £50 | £100 |
| Internal Awards Dinner | N | £80 | £80 |
| Christmas Party | Y | £65 | £130 |
So, looking at cost per head it looks better to exempt the Internal Awards Dinner and the Christmas Party (total £145 per head) and tax the Valentines Disco – as we look at the cost per head for the £150 exemption.
But if the employer did that the taxable benefit would be £100 due to the guest attendance at the Valentine’s Disco.
If instead the Valentines Disco and the Christmas Party were the exempted functions (total £115 per head) the taxable benefit would only be the Internal Awards Dinner which guests did not attend at £80.
Something which most employers feel is so simple it is quite complex!
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