HMRC’s rules mean that the benefit of an “annual Event” costing less than £150 per attendee is not taxed on the employees. If it costs more than £150 the cost is a taxable benefit.
The majority of caring employers normally pick up the tax and National Insurance which would otherwise be payable by the employees through an annual PAYE Settlement with HMRC. So if the event costs £151 per head, the tax and NIC for a 40% taxpayer goes from zero to £139 so the cost to the company is almost doubled.
However, the pitfalls can result in an unexpected tax charge. The first problem is that there is no definition of an “event” and it can therefore be difficult to calculate the cost per person. If there is a traditional dinner dance costing £140 per person but there is clay pigeon shooting beforehand and cocktails in a club into the small hours afterwards, or taxis and hotels provided, HMRC can argue that they are all a single event and the £140 per head cost of the dinner has been comfortably exceeded.
The other problem which arose during lockdown Christmases is under-attendance.
If you book a dinner for 100 employees at £100 per person and due to heavy snowfall or public transport strikes only 50 turn up, the cost becomes £200 per attendee. Although we have argued with HMRC that the 50 attendees cannot humanly eat and drink twice the amount they had expected to consume and therefore they had no extra “benefit”,
HMRC are not sympathetic to that concept!
Finally, don’t forget that it is the cost per person attending the event which is critical and the rules are often understood to mean employees. Allowing partners and friends (but perhaps not strangers from the street) to attend brings down the cost per person!
The next step
If you have any questions regarding this blog please contact Mike Crellin, or your usual UHY adviser.
