HMRC currently has its spotlight on staff and business entertaining, just in time for the summer season, when lots of businesses may be thinking about holding client functions or staff away days. It is therefore important to understand that they are treated completely differently for employment tax purposes – it is easy to make mistakes where employment tax considerations are required. It is an area which, in our experience, employers quite often make mistakes and, bearing in mind how much some spend in this area, mistakes can result in high claims for arrears from HMRC. These can typically cover four years and with the added burden of interest and penalties. It is therefore an area where a few simple steps can save a lot of expense and worry! Some key considerations….
Staff events offsite
If you decide to take your staff offsite, there are different tax implications depending on the activity that you undertake. If there is a genuine business case, perhaps a conference or away day, then such provision should not result in a taxable benefit for the participating employees. We would only expect such an event to occur once or twice a year. Beware however of any excess alcohol costs which may be taxable and on which you may wish to settle the employee tax liability directly with HMRC on their behalf. This can be done through a mechanism called a PAYE Settlement Agreement.
Similarly, any staff events that have no business purpose – such as a night at the races or a round of golf to reward performance or boost morale– are perceived as an employment related reward and the cost of provision therefore taxable.
When is “lunch” not lunch?
Where a group of employees are away from their permanent workplace for a genuine business purpose across a meal time, this is what is referred to as “subsistence” for tax purposes. In these instances, no tax is payable in regard to the provision or reimbursement of meal costs. However, there is a word of warning when meals are held near the workplace – even where there is a genuine business purpose, these costs do not constitute subsistence as they are near the permanent place of work and not incurred during a business trip.
What about client entertaining? If an employee intends to meet a client at a local restaurant or pub, then there is nothing to declare in terms of employment tax, and these costs can be reimbursed to the employee, or the employer can settle the cost directly. This is provided there is sufficient evidence to demonstrate to HMRC that the third party is being entertained for a genuine business purpose.
The business of entertaining
It is essential that claims for entertaining are fully itemised recorded and this is particularly so for business entertaining. This is currently a strong area of focus for HMRC because they understand that in some businesses a lot of entertaining goes on during the course of a business relationship. They also recognise that it is an area where businesses are not always tax “savvy” or compliant.
To ensure a business minimises its risk, for business entertaining the employee should be required to provide details of:
- Attendees and the organisations they represent
- The business purpose of the meeting.
If there are a disproportionately high number of staff attending a third party meeting, the claiming employee should also record the reason the attendees needed to be there.
If you have any queries surrounding employment taxes, contact Wilkins Kennedy to see how we can help.