Member Article

Don’t leave staff with a festive tax hangover

With Christmas party season underway, George Hardey of Waltons Clark Whitehill, looks at how the tax man can be the Grinch who stole Christmas.

It’s that time of year where employees of businesses up and down the country put on their best party clothes and enjoy a night out, often with the bill footed by their employer.

However, lurking around the corner is the potential for that extra glass of champagne to leave staff with a nasty taste in their mouths, an unfortunate holiday hangover resulting, from the boss’ generosity.

For, while it is the season of goodwill to all men (and women), HMRC rules mean there is a VAT-inclusive allowance of £150 per person for “entertaining” staff, and any amount above that is taxable, with the liability falling to the employee.

What is more, the technicalities of this allowance mean that this is an annual maximum sum, so if there is more than one event making up the yearly entertainment then this could be even worse for the staff.

For example, should the first event come in at £80, inclusive of VAT, per person, and the second activity carries a similar cost, taking the total to £160, then one of these would be taxed in full, because it cost more than the remaining allowance.

It is possible for employers to reach an agreement by which they cover the cost of any such overspend, simplifying matters and, in essence, indemnifying staff from the potential tax liability.

George Hardey is Associate and Head of Tax at Waltons Clark Whitehill, chartered accountants and business advisers.

This was posted in Bdaily's Members' News section by George Hardey .