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The Stan Lee

Tax-Free Company Benefit

After the long stressful time during COVID-19 pandemic, you may offer the summer party for your employees and wonder whether the benefit is subject to the tax. In this article, we have a brief about tax-free events for your employees in the UK.

Conditions for tax-free events:

A statutory exemption exists where certain social events for employees are not triggering to tax or NICs liability once some conditions are satisfied as follows:

  • The total costs (including VAT) not exceed £150 per head (annually)
  • The event mainly for entertaining employees
  • Generally, the event open to all employees

The limit of £150 can be used in many events including Christmas Party, Summary Event and more. However, if there are two parties and the combined costs exceed the £150 limit, then £150 can be offset against the most expensive one and leaving the other one a fully taxable benefit.

You can also consider the tax-free trivial benefits (costs not more than £50) for your employees so that they may enjoy more the summer party. However, the benefits should not be in cash or cash voucher and not work recognised.

Tax treatment if £150 limit exceeds

If the costs per head (annually) exceeds the limit of £150, the full amount is subject to tax and NICs on the benefit-in-kind (BIK). However, the employees may not be taxed under PAYE or P11D if the employer agreed to pay HMRC under the PAYE Settlement Agreement (PSA). Under the PSA, the employer’s tax liability must be paid to HM Revenue and Customs by 19 October following the tax year ending.  

The costs of events (regardless of £150 limit) are tax allowable expenses for the employers and can be treated as “staff welfare” costs. The input VAT can be claimed back if the business is VAT registered.

If you have any questions and need further information about tax-free benefits, please feel free to get in touch with us. Also don’t forget to contact us for your accountancy, taxation and business support needs.