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 ...
Ensure you file your employee's P11Ds correctly or you could get the unwanted attention of HMRC!
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.
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!
Until next time ...
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Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.
Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.
When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.
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