November 24, 2022
It is that time of year where employees all around the country turn their minds to the Christmas Party and conversations focus on where the party will be held, what to wear and what to eat and drink.
For employers the thoughts turn to, is the Christmas Party exempt to income tax and national insurance or if is taxable will the staff or employer pay the tax and if applicable the national insurance that arises.
The tax treatment of the Christmas Party (and other annual staff events held in the tax year) will depend on how much is spent on each individual employee. It will then fall within the HMRC exemption limit (currently £150), a form P11D Benefits in Kind may be required, or the employer enters into a PAYE Settlement Agreement (PSA). Each treatment is discussed below:
Provided that the event(s) was on an annual basis (Christmas, Summer, etc), was available to all employees and the total annual cost for each employee was less than £150, then the event(s) are exempt to income tax and national insurance and do not need to be reported to HMRC.
P11D Benefit in kind
If the annual cost for an employee exceeds £150 then the whole cost of the event(s) which breach the £150 limit are to be reported on the form P11D, the employee will pay income on this amount and the employer will pay national insurance. In this scenario the employer chooses which event(s) are covered by the exemption to the staff member’s benefit.
Example – there are three events in the year where the cost of each event is £70, £60 and £50. The three events total £180 so exceed the exemption limit so the employer applies the exemption to the £70 and £60 events leaving the £50 event taxable in full. The tax and national insurance on P11D’s is payable by 19 July following the tax year.
PAYE Settlement Agreement
The employer enters into an agreement with HMRC and pays the income tax on behalf of the staff member. The deadline for applying for a PSA with HMRC is 5 July following the first tax year to which the PSA will cover. The tax and national insurance under a PSA is calculated and agreed with HMRC and is payable by 19 October following the tax year.
Most, if not all, employers will not want to play Scrooge over the Christmas Party and make the staff pay tax on the Turkey and Mince Pie. Therefore careful monitoring of the £150 annual limit or use of a PAYE Settlement Agreement would seem to be the preferred options.
For more information or to speak to one of our expert team, contact us today:
0113 234 0000