Taxable profits: The profits on which tax is calculated. Taxable profits may differ from the profits shown in the accounts
Tax deductible: A cost is tax deductible if it can be deducted from income to calculate taxable profits.
Taxable benefit: A benefit received by employees (earning over £8,500 or directors) on which Class 1A National Insurance is due.
Are you thinking of throwing a party for your staff? Whether you are planning a one off party or a regular annual event, please read on for advice on avoiding an extra tax charge.
The costs of providing a work party is completely tax deductible for the business. As well as the costs of the food and venue, the costs of providing transport or accommodation is also tax deductible. Additionally, a VAT registered business can reclaim any input VAT.
However, the situation is more complicated for employees. Employees generally pay Class 1A National Insurance on work related benefits they receive. A works party may be seen as a taxable benefit unless the following conditions are all met.
- The event must not be a one off event. The event must be an annual event. This can be single or multiple annual events, held throughout the period.
- The event must be open to all employees of the business. Non employees may also be invited.
- The total costs of all annual events must not exceed £150 (inc VAT) per person. If the cost per person exceeds £150 then the full cost is taxable as a benefit on the employees.
A one off work party costs less than £150 per person. This would be a taxable benefit.
A Christmas work party ( held annually ) costs £100 per person. There is no taxable benefit.
An annual summer party costs £160 per person. There is a taxable benefit on the full cost per person of £160.
Where there is a taxable benefit, Class 1A National Insurance is payable through the P11D system. Class 1A National Insurance rate is 13.8% for the 2015-2016 tax year.
An alternative would be for the business to pay the extra tax through a PAYE Settlement Agreement.
If you have any questions on this, please email me on firstname.lastname@example.org. I will get back to you as soon as possible.