We currently have an allowance of £125+vat per year per employee for staff entertainment.
If that allowance is exceeded by £20 per employee over the year (over two social events, a summer and winter party). The rules dictate that this excess should be noted on each employees P11d for the tax year?
How strictly is this enforced and is it realistic to expect a £20 BIK to be recorded on someones P11d?
Replies (19)
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I thought the limit was £150
I thought the limit was £150 these days?
https://www.gov.uk/expenses-benefits-social-functions-parties/overview
I must read the question
The OP says £125+VAT - £125.00 + VAT = £150.00 :-)
I must read the question
I must read the question
I must read the question
i must read the question
'Tis £150.00
and "it is not an allowance" http://www.hmrc.gov.uk/manuals/eimanual/eim21690.htm
It is my understanding
that if you spend £170 then the whole lot should go on the P11D and not just the excess
Error
I see that £125 + vat of 20% is £150. Safer to look at total as benefits are usually based on cost to you, not net cost after VAT reclaim.
Also, it is not the £20 which is taxable - it is the whole of the cost per head for the event which takes you over the threshold. That means if one event is £80 per head and the other £70 you should declare a benefit of £70 per head. It is only reportable for P11d employees.
Whilst there was always a de minimis of £25 for P9d's I am not aware of any such item for P11d's so if it is not declared I believe it will be strictly enforced within the enquiry which discovers it.
A simpler outcome would be an employers agreement with HMRC to meet the tax costs of the benefit. Much better not to have to tell employees we are good aren't we putting on events for you, but by the way, you will be paying tax on it!!
Cost to you v Cost after VAT reclaim
Safer to look at total as benefits are usually based on cost to you, not net cost after VAT reclaim.
Marion - Isn't the cost to you the cost after the VAT reclaim, i.e aren't they the same thing?
Charities may not pay tax on their own profits but they do administer (and pay) Employment Taxes for their employees. As this is in respect of the latter, it would apply to Charities in the same way as any other business.
Otherwise PSA the way to go
We are in the same situation - after an HMRC audit (8 years ago) we now carry out a PAYE Settlement Agreement every year. Takes about an hour a year, and we have the nice warm glow of paying the correct amount of tax (and no penalties).
PSA for entertainment for sure
Hi
Definitely put a PSA in place for staff entertainment, and leave the P11D for actual benefits eg. private medical.
Don't forget when calculating the cost per head you are not dividing the costs by total employees in the business, but by the total number of people who attend the event (including non-emloyees).
Often people get the attendance figure for employees only and don't remember to keep the non-employees in the denominator, if you are in that happy circumstance that will immediately bring the cost per head you've calculated. If you have already done that and are still tight on the limits and expecting to go slightly over you could introduce a small charge to either spouses or team members.
This could be dressed up you contribute to the annual party cost £5 per head and the company will make a donation to XYZ foundation/charity of at least double this (I don't think you'd want to make too direct a connection with the amount of the donation and the amount received). The cost of doing this to the company would be less than making up the tax through a PSA on a £70 where that £70 had brought you upto £155 in total (in all but the most obscure circumstances).
Of course no doubt the tabloids will splash you on the front page for outrageous tax avoidance lol.
Including non employees
But don't forget to add the VAT back in (on their part of it anyway) or, if customers, then all the VAT
What if there are other events throughout the year - say a birthday dinner for someone and the company pays for drinks? Does that come out of entertainment allowance?
Exemption, not allowance
What if there are other events throughout the year - say a birthday dinner for someone and the company pays for drinks? Does that come out of entertainment allowance?
The exemption (it isn't an allowance, as hje mentioned above) is for annual events. If the entertaining is not an annual event (like Christmas Parties or a Summer Barbeque or whatever - something you intend to do each year) then you don't get any exemption at all. Obviously birthdays are annual but if you only go out for a 'landmark' birthday (decades, 21, 18 etc.) then it isn't an annual event.
As far as I am aware you are quantifying benefit received and employee wouldn't have got vat back.
I think benefits legislation specifies vat inclusive
HMRC have a long established practice of using the VAT inclusive cost (and insisting everyone else does the same). I don't think it is actually in the legislation but you'd have a very hard battle convincing them otherwise. No one's ever gone to court to prove them wrong because it's never worth it. I think you'd probably have a good chance seeing as the legislation specifies 'cost to the company' but I guess we'll never know.
@chatman
As far as I am aware you are quantifying benefit received and employee wouldn't have got vat back.
I think benefits legislation specifies vat inclusive