It’s well known that employers can use a tax break to exempt Christmas parties from a benefit-in-kind charge. But did you know the same exemption can apply to a summer outing?
Employees and their guests are not taxed on benefits where the annual costs of a party, outing or other function provided by the company does not exceed £150 per head, inclusive of accommodation, travelling and VAT. This exemption has some good advantages, but also some pitfalls which organisers and payroll staff must consider carefully.
For instance, a company might have a Christmas lunch costing £75 a head, where each employee could invite a guest, a summer ball for employees costing £100 per head and a barbeque for employees costing £30 a head. The exemption may only be used to cover a complete event, so it could not be used for the summer ball (£100), the barbeque (£30) and part of the Christmas lunch (£20). You have to decide which event comes within the statutory exemption, and which must be shown on the Form P11D.
You might expect, in the above case, that the logical answer would be to choose the summer ball and barbeque (totalling £130), making the Christmas lunch of £75 taxable. However, as most employees bring a guest at Christmas, the P11D figure would be 2 x £75 = £150. It would therefore be better for the company to claim exemption for the Christmas lunch and barbeque, totalling £105, but exempting an additional £75 for the Christmas guest. Employees and directors would then be taxed on £100 for the summer ball.
There can be difficulties where the total cost of the function divided by the number of attendees is near £150. The exemption applies to the facts on the day. If potential attendees fail to turn up and the total cost of the function divided by the number of people who actually attend exceeds £150, then the whole amount is taxable as a P11D item. If each employee had brought along a guest, the taxable amount would be £300+.
In some instances a company will provide several functions a year. The £150 maximum exemption still applies, and the company has to choose which event falls within the exemption. Where an employee attends several functions and the total costs exceed £150, then some of the costs will be a P11D item.
The whole cost of the event that exceeds the £150 threshold becomes taxable. So if you had a £1 party and £150 party, you wouldn’t want to have them in that order!
Photo by Rubber Slippers in Italy.