As Christmas approaches, it’s time for HM Government to show a bit of goodwill to firms, employees, and the hospitality industry, say leading tax and advisory firm Blick Rothenberg.
Robert Salter, a tax service director with the firm said: ‘The Government should relax the rules on Christmas parties (and similar events) and increase the amount which can be treated as ‘tax free’ each year from £150 per employee to £300 per employee.’
He added: ‘There are a few factors which help justify this change. Not only has the existing £150 annual limit – which is a VAT inclusive limit – been in place since 2003 and is therefore massively “out-of-date”, but changing this limit would also provide businesses generally and the hospitality sector with some much-needed support, as they look to recover from the Covid pandemic.’
Robert said: ‘Increasing the limit to £300 per employee per year, would help reduce the overall costs faced by employers and encourage employers to provide employees with a ‘genuine thank you’ for all their efforts. Specifically, a £300 per employee limit would mean that in most reasonable cases, there is no need for employers to report any taxable benefit-in-kind charge via a PAYE Settlement Agreement (PSA).’
He added: ‘Where employers need to cover the tax cost of a Christmas party via a PSA they can face an effective tax liability (including taxes and NICs) of up to 107% of the core value of the Christmas party.
‘This can mean that the effective, cumulative cost to the employer of providing a Christmas party can easily in some cases be up to 200% of its headline, initial per head cost.’
Robert said: ‘Employees need to ensure that they avoid making some ‘common mistakes’, when it comes to budgeting for their Christmas party. For example, the £150 value mentioned above is not an “allowance”. Hence, if the per head cost of the event is above £150, the full value of the event becomes a taxable benefit – and not just the excess amount over the £150 threshold.
‘The £150 threshold is an annual limit – and not something which applies purely on a per event basis. if a company provides a summer ball for staff and a Christmas party, for example, the employer needs to look at both events and assess whether the £150 threshold has been exceeded.’
He added: ‘In this situation, if the summer ball cost £100 per head and the Christmas party £135 per head, firms would – if the event was genuinely open to all staff – be able to treat the Christmas party costs as ‘tax exempt’ as it is under the £150 threshold, but the costs of the summer ball would represent a taxable benefit and need to be recorded via a firm’s PSA with the Revenue. In contrast, if both events exceeded the £150 threshold – say £160 for the summer ball and £200 for the Christmas party the employer would need to report the full combined sum for each employee as a benefit on the PSA.’
Robert said: ‘It can be a minefield. The tax-free amount should be increased, and the rules could be simplified.’