New Forest

20/01/2025

Tax consequences of entertaining staff

As a starting point, staff entertaining/functions are likely to be classed as a source of taxable employment income for the employee/director in receipt of the benefit (based on the value of the entertainment provided). To be exempt from income tax it would need to be shown that the event is mainly associated with their employment duties.

Staff Functions

As you may be aware, a company can spend up to Β£150 on each employee to cover the costs of staff entertaining. A one-off anniversary celebration would not fall within this exemption, as to be exempt the event would have to be an annual function such as a Christmas Party or a summer BBQ.

Overseas and UK Trip/Conferences

The cost of a company putting on an overseas or a UK trip/conference can be classed as a taxable benefit for the employees/directors that attend. For this trip not to be classed as taxable employment income, it would need to be demonstrated that attendance was necessary to carry out the duties of employment for each individual that attends, and the trip was predominantly work related, rather than for entertaining staff. Therefore, to be exempt it would need to be shown that the days were dominated by work related activities and not social functions/entertaining.

Even if the conference was mainly work related (i.e. the days were taken up with work meetings rather than social activities), HMRC in their manuals say they will question if the trip is to β€˜an exotic or desirable location that appears unrelated to the trip’. HMRC state that overseas trips arranged to incentivise employees or reward past performance often have a minimal business element and they would expect to see this as taxable for the employee/director in attendance.

If a partner of an employee accompanies them on a conference/trip, HMRC in most cases would expect to see the costs incurred on paying for the partner to attend to be assessable for tax on the employee. The only way this could be avoided, is if the employee could demonstrate the attendance of the partner was necessarily incurred for their employment duties (e.g. the spouse was acting as interpreter).

Therefore, if you were to arrange an overseas conference and you did not wish for your employees to be taxed on this, you would need to show that the event was mainly related to duties of employment. The daily itinerary would need to predominantly comprise of work-related courses/activities.

Pay As You Earn Settlement Agreement (PSA)

If you decided to proceed with running a taxable event for your staff and were willing to pay for the income tax and NIC due on each staff member, a PSA agreement with HMRC will allow you to do this (this would mean you would have to gross up the value of this benefit). An overseas conference could fall within this definition.

An application for a PSA will need to be filed with HMRC by 6 July following the end of the relevant tax year that the cost has been incurred in.

Of course, this option could be expensive for the company as it will need to fund the income tax and NIC due on each staff members deemed benefit in kind.

Other Options

Trivial benefits can be awarded of up to Β£50 to staff members (to mark events such as birthdays). To be exempt the award cannot be for services performed and it cannot be in the form of cash.

Long service awards can also be awarded tax free (up to Β£50 a year), when an individual has worked for the organisation for 20 years or more. If you wish to know more on this, please advise.

If you would like more information or have any queries please contact Joe Wilson on 023 8046 1237 or email Joe Wilson.

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