Santa’s Tax Hangover?
Happy New Year everyone. May it be prosperous and happy for you. One way it will be is to keep as much of your well earned income as legally possible and bless the tax man with only what is rightfully his.
Hopefully, you had a refreshing break and didn’t suffer too heavy after-effects even if your Christmas party office celebrations did get quite lively. However, today I’m writing to flag up what could be an annoying hangover gifted from Santa at the staff Christmas party - but I’m trusting it won’t be for you.
What follows will clarify what the tax position on office parties is and for that matter on presents to staff.
As most of us Independent Financial Advisers give at least some tax advice to clients we ought to be familiar with the tax rules on parties and presents, but there are some peculiarities in those rules. Look at them again very carefully to make sure your party will not cause you a big tax hangover this New Year when you submit your P11Ds.
The Christmas Party… or other company events in 2008
An annual event to which all staff are invited will not be a P11D expense provided the cost per head, including VAT, does not exceed £150.
Notice the rule says “per head”, not “per employee”.
The good news is that this means exactly what it says.
Let’s sketch out some likely scenarios. If 10 employees all attend a Christmas party with a partner you could spend up to £3,000 without this becoming a taxable benefit. You could even invite clients to swell the numbers if needs be – think “per head” not “per employee”.
The bad news (for those of you who are VAT registered) is that you can only reclaim the VAT on the amount spent on members of staff, but not what is spent on their partners. In the above example, £1,500 of the total.
This next point is the most important of all. The number who actually attend is crucial. This could cause you a real tax headache if there are illnesses at the last minute for example, and any of the costs bear a minimum charge or a fixed sum.
Let’s suppose you arranged a meal with a live band for entertainment. The meal cost £75 a head including wine and the band charged £750, all VAT inclusive. Twenty people were planning to attend, so the cost per head was going to be £113. Well within the £150 a head limit. As the time for the party approached, a bout of flu passed around the office. More and more employees had to give their apologies and miss the party. In the event, only fourteen people turn up. The cost per head would go up to £160.71. This means the entire amount suddenly becomes a taxable benefit for each member of staff who attends.
Yikes… onset of slight nausea, hangover? Not likely, read on.
In this example you could save all that grief if you could get just one more person to attend, even if you dragged them in off the street. The cost per head would then drop to £150, which would mean nobody had to pay any tax. Perhaps this gives new meaning to Matthew 22:1-14, although I think the tax rules were slightly different in those days!
Note that all staff must be invited, even though they do not all have to attend. If you have a party for registered individuals to which the administrative staff are not invited this will be a P11D benefit regardless of the amount spent per head.
A final point on tax-free staff parties. There is no minimum limit on the number of staff your business must employ before you can take advantage of the rule. If you and your life partner are the only staff members, have a staff party (read “romantic meal for two”) on the business. Your tax inspector will probably not like this, but it is nevertheless perfectly legal. Make sure the business pays directly – otherwise the Revenue may succeed in disallowing it. And of course, keep strictly to the £150 per head rule too. Even these days (or if you live in London), that ought to get you a pretty decent romantic meal.
Hope that helps clear the head for 2008 and helps keep the Tax hangovers for company owners at bay this year.
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