Tax implications of staff rewards

Staff parties and events are a great way to reward your workforce following a successful year but it is important to consider the tax implications of staff rewards. There are a few pitfalls to bear in mind in order to avoid any unexpected tax or national insurance liabilities. To be completely exempt from tax and national insurance, the function must meet all of the following conditions:

• The cost must not exceed £150 per head;
• It must be open to all employees; and
• It should relate to an annual event, e.g. a Christmas party or summer BBQ (one-off events, such as a party to celebrate an anniversary, are not exempt).

Cost per head

To calculate the average cost per head of an event, the total cost is divided by the total number of attendees (employees and non-employees). If your employees are able to bring guests and the cost per head exceeds £150, the benefit assessed on the employee will include the cost for themselves and any members of their family/household who attend. When determining the cost of the event, you will need to take into account not only the cost of the venue but also any VAT paid, accommodation costs and the cost of travel arrangements to and from the event.

Multiple events or locations

If you operate your business over several locations or have various departments, events can be held separately and will be exempt so long as all of your employees are invited to attend at least one of them. The £150 limit is not an allowance to be set against the total cost; therefore, if the cost of a single event exceeds £150, the full amount will be chargeable. In contrast, if the combined cost of multiple events does not exceed £150 per head, they will all be exempt. If the aggregate cost of several annual events does exceed £150, you can choose the most beneficial event(s) to exempt. For example: Your business holds two events in the year for your employees; the first costing £1,200 (including VAT) for 12 employees and the second £800 for 10 employees. The total average cost per head is £180 so both events cannot be exempt. Either event could qualify for exemption on its own; however, it is most beneficial to exempt the first as the cost per head is greater. Therefore, employees who attend:

• Both events will only be chargeable on the benefit for the second event (£80)
• Only the first event, will have no chargeable benefit
• Only the second event, will have a chargeable benefit of £80

For any events which do not meet the above criteria but the cost is less than £50 per head, the events could still be exempt from tax and national insurance through the trivial benefit exemption. If you want to hold events which are not covered by the exemptions outlined but do not want your employees to suffer any tax, a PAYE settlement agreement could be the preferred choice, settling the tax on your employees’ behalf. For more information, please get in contact with the tax team.