Member Article

Sport’s summer season is upon us - don’t let the taxman bowl you a googly

Sport’s summer season has finally arrived, and many businesses will be digging deep to impress clients and staff with a bit of corporate hospitality – but care is needed to avoid falling foul of the taxman.

It’s not only the admission tickets and dining packages that need to be accounted for as ‘entertaining’ but also all the travel, accommodation, parking, additional drinks, charity auction bids and any other costs that the employer has picked up and which are in any way related to that sporting event.

Never mind the budget they were given, what did your sales team really manage to spend on themselves and their guests? What’s in their expenses claims, on their company credit cards, funded with petty cash or paid via the purchase ledger? It all needs to be totted up and, for business tax purposes, identified separately because it is a cost that does not get any tax relief. The only advantage point here is that there is no taxable benefit for hosts or guests.

But, because this is tax there’s always an offside rule, and if there aren’t any guests present at the event, then the tax rules are completely different.

The employer does get a business tax deduction, but then HMRC imposes a tax charge on the employee - although employers can play ball and agree to accept the tax and NICs costs on their behalf. But it’s expensive. For employees who are 40% taxpayers then it could be a gamechanger, as the employer will pay tax and NICs at almost 90% on top of the cost of the event. A PAYE Settlement Agreement (PSA) takes the tax charge off the employees but, as it’s calculated to leave the employees with the right amount of net pay, it comes at a hefty cost to the employer.

Some employers try and merge the two sets of rules on the incorrect assumption that, if they don’t claim a business tax deduction for the costs of entertaining employees, the employees won’t have a tax charge on the benefit of their day out.

That’s like hoping to see croquet on Wimbledon’s centre court. Nice idea a long time ago, but just not going to apply in 2014.

Lesley Fidler is employee benefits director at Baker Tilly

This was posted in Bdaily's Members' News section by Baker Tilly .