Staff Entertaining – What Level of Benefits are Tax Free

This time of year, employers will be putting on functions/parties for their staff but if this is not monitored this can result in unwanted taxable benefits in kind being generated for staff members.

The event/function will be exempt from Tax and National Insurance Contributions (NIC’s) for staff so long as the following conditions are met:

• The event/function is open to all staff.
• It must be an annual event such as Christmas Party.
• The event cannot cost more than £150 per person.

The £150 limit, applies to all functions in a given tax year, providing the combined cost of all events remains under this limit (and all the other conditions are met) there is no benefit in kind charge for an employee.

If the cost of entertaining goes over this limit, an employer has a couple of options available to them to ensure their staff don’t suffer any tax burden:

• The trivial benefits exemption of up to £50 could be considered.
• The employer could apply to HMRC for a Pay As You Earn Settlement Arrangement (PSA). This would enable the employer to cover the income tax and NIC’s due on minor or irregular benefits offered to employees. Any application for a PSA with HMRC must be made by 5 July following the end of the tax year in question.

The above is just a snapshot of these rules and if you would like further information on this, please contact Joe Wilson in the tax department.

Trivial Benefits Tax Exemption

Employers around this time of year may wish to award gifts to staff members. However, care needs to be taken to ensure that the value of any gift awarded does not generate an unwanted tax charge.

HMRC do have an exemption in place for Trivial Benefits. This exemption covers gifts worth up to £50, it cannot be in the form of cash or a cash voucher. Benefits covered by this exemption could typically include hampers, bottles of wine and non-cash vouchers.

For the benefit to be free of tax it cannot be in connection with duties performed by the employee (e.g. a reward for piece of work done well) and it cannot be a contractual award.

There is no limit on the number of occasions tax-free trivial benefits can be awarded to staff in a given tax year. However, for directors of close companies’ trivial benefits can be awarded no more than six times a year.

If the value of any trivial benefits exceeds the £50 trivial benefit exemption, employers can apply to HMRC to get a Pay As You Earn Settlement Arrangement (PSA) in place. This would enable the employer to cover the income tax and NIC’s due on minor or irregular benefits offered to employees. Any application for a PSA with HMRC must be made by 5 July following the end of the tax year in question.

If you would like any more information on our business tax services or how this benefit exemption can be used, please contact Joe Wilson in the tax department on 023 8046 1237 or email Joe Wilson.