£150 / head expenses exemption
As an employer providing fun using social functions and parties, your company has certain National Insurance and reporting obligations as well. However, let’s look at one exemption that you may have missed.
HM Revenue and Customs (HMRC’s) £150 / head staff entertainment concession
Did you know?
Expenditure of up to £150 per head on an annual staff event can be exempted from both Income Tax and Employers’ National Insurance. (If you didn’t know then now is the time to find out!)
There are a couple of rules though (of course there are!):
It is easy to calculate the cost of the event! What you need to do:
° It should be an annual event
The exemption covers recurring annual events, such as a Christmas Party, an Awards dinner or a Summer Barbeque held every year but NOT ‘casual hospitality’ like drinks on a Friday night or a one-off event like a 20th Anniversary Party. A 20th Anniversary is a big deal but is not an annual party at the end of the day.
° Virtual events are also allowed
Even virtual parties where staff join using video conferencing or some other IT software, have been added to HMRC’s guidance as annual functions qualifying for an exemption from tax. So, if your party is using IT and meets all the other conditions, then it will be exempt. Also, if you were to send every employee a hamper or gift to enjoy during the event you can add that to your total cost. It will be exempt as long as each employee is sent one and it is less than £150 per head.
° It should be open to all staff
A prerequisite is that the function is open to all employees in order for the exemption to be applied. Where the employer operated from a different location the event can be restricted to one action such as a regional office but not ‘management only’. This means there’s no tax relief if the event is solely for directors and their families.
° Multiple parties? Why not!
It’s perfectly acceptable to hold separate functions under the same rules for different locations. Other guests can be invited too but the main motive must be the entertainment of all staff. What if it’s only you? Well as long as the criteria are met you can throw yourself a party and the exemption will apply.
° The total cost of the event should be less than £150 per head.
If the event costs less than £150 per head then the employer is not obliged to report the event to HMRC or pay any Class 1A NICs. However, if the total cost exceeds £ 150 per head NONE of the expenditure can be covered.
° The total cost includes VAT
The total cost per head includes VAT and any other cost incurred for the annual event – may it be transportation or accommodation (if you want to be lavish). Again, make sure the event meets all the other required criteria to apply for the exemption.
° It can be applied for multiple events during a tax year.
More than one party? Yes, you can have several events per year. Remember, that the £150 per head exemption applies per employee per year, not per event. Where two or more functions are held per year the aggregate cost cannot exceed £150 per head. The exemption can be used in any combination to cover two or more functions as long as the whole function falls within the limit. Thus, the exemption can be split across multiple events, given each separate event meets all other eligibility criteria.
° Voluntary Settlements
For expenditure that is not covered by the annual exemption, you can get them covered through voluntary settlements. Get in touch with HMRC (you don’t want to be in trouble with them) first to discuss and negotiate a voluntary settlement to pay all your income tax and National Insurance.
You can even include things like sandwiches provided during meetings or pizza bought for employees working late. (Oh, yes these are taxable benefits too!)
It is easy to calculate the cost of the event! What you need to do:
To calculate the cost per head of a staff party or event, add up all costs incurred to make it possible for your employees to attend the function and divide it by the total number of employees who made it to the function. The total number attending could include spouses and guests so increasing the size of the party at times can reduce the total cost per head. You just need to be smart, sit down and plan ahead!
What you may need to report and pay?
If any of your company events are NOT exempt under the criteria set out, you’ll have to:
√ Report the costs to HMRC
√ Report on each employee’s form P11D
√ Pay Class 1A National Insurance on the full cost of the event
Remember!
The £150 per head for annual events is not an allowance it’s an exemption. You can only claim for the cost of staff entertainment only if they are genuine business costs.
An employer must take reasonable care to calculate the annual cost per head at events. Don’t forget to keep sufficient records to show HMRC if required. And make sure that any receipts or bills are under your company name.
When calculating the cost per head at an event, it’s important to factor in all costs incurred to make it possible for all its staff members to attend. This may include transport to and from the venue if provided or overnight accommodation if provided and paid for by the company.
To keep it short – careful planning will help you make the most of this exemption.
For careful planning and how to make the most of the annual exemption speak to your accountant first. This way you can get the advice of an expert. Speak to one of our accounting experts and AccNet and make plans that work.