P11D: Focus On Staff Entertaining

Accountants are noticing an increasing number of enquiries from HMRC about the amounts spent on entertaining staff. As we approach the P11D filing deadline, I thought I could remind you of the tax rules about what can be claimed ...

The deadline is 6th July and HMRC are clamping down on spurious claims and have been sending letters out to employers whom they deem have claimed for excluded items before.

These include:

- Staff entertainment costs shown in the company's own accounts - No PAYE Settlement Agreement (PSA) in place. - Staff entertaining hasn't been reported on previous P11Ds

Remember, staff entertaining provided to employees is mostly seen by HMRC as a taxable benefit. This will include staff events, parties and other social functions. An employer can include it on their PSA so they settle any tax and Class 1B National Insurance on behalf on their employees, or it should be reported on the employee's actual P11D with the company settling up the Class 1A.

Staff entertainment can be tax exempt where certain conditions are met. This includes costing less than £150 per head (in a single tax year), is annual in nature and is open to all employees.

The type of entertainment can offer up a number of complexities with the exemption though. Calculating the cost per head when spouses and partners are included, travelling and accommodation costs and the locations of multiple parties for different parts of a larger business all make the calculation more complex and prone to mistakes.

If staff entertainment isn't covered by the annual events exemption, you must seriously consider if it complies with rules on trivial benefits for employees. These can be offered when:

- the cost of providing the benefit is £50 or less - the benefit is not cash or a cash voucher - there is no contractual entitlement and it is not under a salary sacrifice arrangement - not provided in recognition, or in anticipation of, particular services performed by the employee as part of their employment

In limited companies with five or fewer employees (including the directors) and the benefit is provided to a director or other office holder, the exemption is capped at £300 per tax year.

If you haven't reported staff entertaining in previous years correctly, HMRC can recover any tax and NIC contributions due for up to four past years for tax and six years for National Insurance.

You could also receive penalties and interest charges as well!

If you'd like to find out more about anything I've written here, do call me on 01908 774323 or leave a comment below and let's see how I can help you.