EXPENSES - 23.11.2006

10th anniversary party

Last year’s problem

The detail. When John organised the company’s 2005 staff party, he was aware of the basic tax exemption of £150 (including VAT) per person attending. The hotel and dinner were booked at a cost of £100 per head so he thought there was plenty of leeway for extras. A band was arranged plus casino tables for the evening and paintball games for those who wanted them in the afternoon. As it was a special occasion, transport to the venue was to be reimbursed and there were gifts to mark the 10th anniversary for all on the tables. Unfortunately, in the week of the party, a number of staff caught a ‘flu bug and so the number of staff members who attended was less than anticipated.

The hangover. When the P11Ds were prepared in June 2006, it soon became apparent that the costs exceeded the £150 exemption per person attending the event. As a result, the entire costs of the event had to be treated as a benefit-in-kind, not just the excess above £150. In order to avoid embarrassment and upsetting staff, John decided the company would settle the tax and NI and this was settled as part of the PAYE settlement agreement in early October.

Classic solutions

No frills. For the purposes of the exemption all costs of an event paid by the employer have to be included, so transport, gifts at the event and additional activities are all counted. Staff can however, make a contribution towards costs (perhaps for partners or additional activities) and this reduces the cost for the purposes of the exemption.

Tip 1. Consider asking staff for contributions (such as a nominal £10 for partners) if costs are likely to be close to the limit.

Tip 2. Instead of providing gifts at the Christmas party, distribute them in the office on another date. Their costs can then be ignored for the purposes of the £150 exemption. The gifts will be taxable separately unless the Taxman agrees to exempt them as a trivial benefit and for the VATman they are kept below the £50 mark.

Tip. Agree with the venue a cost per head and confirm numbers at the last possible moment to avoid average costs rising above the £150 limit per person through non-attendance.

Just the two of you?

The law says the exemption applies to events provided for employees generally. So if a director employs his wife in the company he could claim a night out or weekend away as their own annual event, e.g. Christmas party, though not if there are other employees; everyone has to be invited! The Taxman may not like this where there are no employees other than family membersbut it is the law! (s.264 Income Tax Earnings and Pensions Act 2003.)

Tip. If your partner is your only employee why don’t you enjoy your own annual event? As long as the total bill comes to less than £300, it’ll be tax and NI-free for both of you. Try and formalise the outing as a works do by recording the booking in the company minutes. And make sure the company pays directly for the meal, otherwise it is an expense to be repaid to you, as director, which may not be allowable.