Catering Scotland

With Christmas fast approaching and firms gearing up for the festive period, it has become customary for companies to reward their staff and clients for hard work and loyalty over the past year. However, it’s worth considering the possible tax and national insurance implications of these, before giving in too quickly to your generous side. With a warren of regulations in place to ensure anti-bribery legislation is upheld, HMRC is keeping a close eye on operators to ensure they comply with the rules.

David McComb clarifies HMRC’s position on Christmas parties, gifts and entertainment…

Annual Christmas Party

The facts are simple: Employers are able to spend up to £150 (inclusive of VAT) per head each year on staff entertaining for annual events such as the Christmas party and summer BBQ.  This limit includes the following:

1) The provision of food, drink and entertainment

2) Any costs incurred in relation to travel and accommodation for the party in question

In order for the costs to qualify for exemption, the event must be open to all members of staff and must relate to annual events as opposed to informal monthly drinks.

On the other hand, if there is more than one staff event per annum, then there should be no tax or national insurance implications providing the aggregated cost of the annual events is below £150 per head.

If the £150 per head limit is exceeded, then the event which takes the aggregated total over £150 is subject to both tax and national insurance.

It should be included on either forms P11D or incorporated on a PAYE Settlement Agreement (PSA).

For example, if you provide staff with a summer BBQ costing £75 per head and a Christmas Party costing £120 per head, as the total cost per head exceeds £150, then you are able to choose the function which best utilises the £150 allowance. Therefore,  in this case, it would be best to choose the Christmas party to make use of the £150 allowance.

The BBQ costing £75 would then be subject to tax and national insurance.

Where spouses are invited to events, they have their own £150 allowance.  However, if the £150 allowance is exceeded in total then the event will be taxable on the attending employees.

Christmas Gifts

It is common for employers to make gifts to employees at Christmas time. Generally, gifts such as chocolates, bottles of wine and turkeys should not attract a tax and national insurance charge, as they are classed as trivial benefits.

If more than one item is given, care must be taken to ensure that the cost is still classed as a trivial benefit.  For example, if you gave a box of chocolates and a vintage bottle of wine, the vintage bottle of wine would not be covered by trivial benefits.

Caution should also be exercised when employees are provided with gift vouchers. HMRC views vouchers as employment income, which means tax and national insurance liabilities will arise in respect of the provision of the voucher.

If you do not want your employees to pay these liabilities, you can enter into a PAYE Settlement Agreement with effect that you, the employer, meets the total liability (calculated on a grossed up basis).  A PAYE Settlement Agreement should be agreed with HMRC before the vouchers are given to employees but recent experience indicates that HMRC will agree applications up until 6th July following the end of the relevant tax year.

Anti-Bribery Act 2010

The Anti-Bribery Act was introduced to ensure that employers are protected from acts of bribery.  It is a criminal offence to offer, promise, give, request, agree, receive or accept bribes.

Therefore, staff are unable to receive gifts in return for a financial or other advantage.  It is worth noting that bribery covers not only the acceptance and giving of physical gifts but could also include contracts, non-monetary gifts, and offers of employment.

It is also a corporate offence to fail to prevent bribery by persons working on behalf of the business.

With that in mind, it would be prudent to introduce a robust anti-bribery policy to prevent such risks occurring. This policy should include:

1) How you, the employer, intends to reduce and control the risk of bribery, rules about accepting gifts, hospitality or donations

2) Guidance on how to conduct your business

3) Rules on avoiding or stopping any conflicts of interest

Staff should be aware of the policy and should understand how it affects them.  You should also regularly review and monitor your policy to ensure that it is current and is appropriate to your business.

If the safeguards outlined above are put into practice well in advance of the festive period, employers can rest assured they have done everything they can to comply with the relevant regulations. We wish you a happy and restful festive period when it comes.

David McComb is Tax Director at Mazars. For more information on any aspect of accountancy, tax planning or advice, call 0131 313 7900 or visit www.mazars.co.uk.