Staff parties and taxable benefits
Hayley Benn · December 6th 2023 · read
Small things, big consequences
We may not think it but small gestures matter to our teams. Two little words go a long way, thank you and when reinforced by actions this is multiplied. So how can we show our employees that we appreciate them and all that they do?
The suggestions here can be used any time of the year, however there is an underlying expectation during the festive period that employers reward their staff for their accomplishments throughout a busy year.
Social get togethers have a two-fold benefit, in that they reward staff and build bonds within teams. This leads to a better team culture and Data found in their study that employees who had a great time at their works Christmas party were 96% less likely to resign the following year. That is a massive statistic, why would you not want to arrange a party.
Why is this? Well, our teams spend long hours with each other in a formal workplace setting and giving them the opportunity to unwind together means that the bonds they form are no longer just work related.
From the Data study this also means that retention is far more likely, meaning lower recruitment costs and staff turnover. So, a happy workforce leads to a loyal work force. Isn’t that what we all want to achieve?
So, we know the potential benefits but what guidelines are there that we need to adhere to not fall foul of the tax regime?
Ideally, we are looking to avoid anything we do creating a taxable benefit in the hands of our employees. We don’t want to treat them to a party and then them have to pay any tax on it, I don’t think you would be high up the Christmas card list if you did that.
What is a taxable benefit or benefit in kind?
A taxable benefit is required to be declared on form P11d, and results in the employee having tax and national insurance consequences, as well as the practice having to pay national insurance.
Alternatively, a PAYE settlement agreement could be set up by the practice. If you do decide to use a settlement agreement, be aware that, these are not cheap.
A PAYE Settlement agreement is where the practice agrees to pay the tax and national insurance on the grossed-up benefit. They must be applied for before 6 July after the end of the tax year in which the benefit arose.
So what are the conditions you must satisfy to avoid creating a taxable benefit?
It is important to understand the conditions to make the event exempt from reporting as a benefit in kind. These conditions are:
- It must be open to all your employees
- Be annual, such as a Festive party or Summer Ball/BBQ
- Cost £150 or less per person
These may seem like simple conditions, but we need to look at each of them in turn:
Open to all employees
This may seem straight forward but what if you have multiple surgeries or separate departments? As long as every member of staff is able to go to one of the events or parties then this will still fall within the exemption.
Must be annual
This condition is the clearest of them all and is self-explanatory.
Cost £150 or less per person
On the surface this also seems clear, but we must consider how the cost is calculated, does it include VAT, is it just the main event or do other things have to be added in such as transport for example.
Well, yes and yes is the answer, VAT should be included and associated costs such as transport and accommodation should be added to the overall cost. This total amount is then dividend by the number of people attending the party or event to give a cost per person.
If this cost is under £150 per person, the exemption is applicable and not taxable benefit has been created.
On the other hand, if it exceeds £150 per person then a taxable benefit arises on the total amount.
The £150 per person is an annual limit and therefore if you were to have two events in the year the overall cost of both events must not exceed this limit. Where it does then one event may be exempt and the other may create a taxable benefit. For example:
- Festive party £90 per head
- Summer BBQ £70 per head
In the above example we would set the exemption against the festive party and the Summer BBQ would become taxable, as this is most tax efficient.
Is there another way to reward our teams?
Lots of employers give gifts such as chocolates, flowers, hampers or even vouchers, which I am sure you would agree would be appreciated by any employee. These gifts can incentivise staff and increase morale more than you think. You are creating a culture of appreciation and gratitude and that goes a long way.
Again, we must think about the tax position we may find ourselves inadvertently stumbling into, but luckily enough there are such things as trivial benefits.
But, what are trivial benefits?
A benefit is deemed as Trivial and therefore exempt from tax if:
- it cost you £50 or less to provide.
- it isn’t cash or a cash voucher.
- it isn’t a reward for their work or performance.
- it isn’t in the terms of their contract.
So, using the Trivial benefits exemption is a good way of rewarding your employees, for example with a bouquet of flowers, store voucher, non-cash voucher or a hamper.
But remember that voucher needs to be £50 or less, so no £75 vouchers in one go. As if the above is breached in any way, then the benefit becomes taxable and reportable to HMRC.
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If you need any further advice, please do get in touch with our MHA healthcare team