Staff welfare – exemptions and tax liabilities
Within many businesses the staff welfare account code is often used as a home for all employee related expenditure that doesn’t fit neatly elsewhere. At the end of the tax year however, identifying the appropriate tax treatment can be quite a headache. Here’s our guide to the relevant tax rules, and to making full use of the exemptions and concessions available.
You can provide tea, coffee, biscuits etc. in the workplace without a tax charge arising. Just make sure it’s available to everyone on the same basis.
Staff restaurant and the provision of food
The rules regarding the provision of food at or near work can be complex. Please ask for a consultation in respect of any arrangements which are not straightforward.
In general terms, a tax exemption will apply if you provide a workplace canteen (whether free or subsidised). All food must be served within the canteen itself and must be available to all employees based at that location. Alternatively, you can provide food outside of a staff canteen, if it’s available to all staff, and the meals are provided on a reasonable scale.
Employers are often caught out when meals are provided to staff off-site, for example in the pub or a restaurant. In this case a tax charge will arise, unless employees are away on a business trip (or it’s a qualifying Christmas Party or other annual event).
A charge can also arise if “working lunches” are provided to team members during a meeting. This applies if other employees on the same site do not have access to an employer-provided meal. In this case employers often meet the employees’ personal tax and NIC liabilities by including costs within an annual PAYE Settlement Agreement (PSA).
When an employee is away from home and work on a business trip HMRC will not generally apply a tax charge to a reasonable level of alcohol purchased with an evening meal. You can also provide alcohol during certain Christmas parties and other events without a tax charge arising (more on that later).
Alcoholic drinks served in the office, or at the pub however are almost always a taxable benefit and another common PSA item.
The government introduced a tax and NIC exemption for trivial benefits in April 2016. It applies where the item provided:
• costs the employer £50 or less to provide
• is not given in the form of cash or a cash voucher
• is not a reward for work or performance
• is not provided by the terms of the employee’s contract.
Examples of qualifying benefits include flowers given to mark personal events and Christmas or birthday gifts. Qualifying awards can also be made in the form of a non-cash voucher.
A limit applies to the number of trivial benefits that can be provided to directors and, for all employees, the award cannot be a reward for services. Incentive awards are generally taxable therefore, while qualifying gifts are not.
Christmas parties or other annual events
A specific exemption lets you invite your employees to a Christmas Party, and certain other social functions, without a corresponding tax or NIC charge. To qualify, costs must relate to an annual (or landmark) event. Ad hoc staff parties don’t unfortunately satisfy the exemption. All employees must be invited (on a site by site basis), and the total expenditure for all qualifying events in a year cannot exceed £150 per head. (You can include partners who attend when calculating this cost).
Where amounts spent on an event exceed this limit, all expenditure relating to that function will be taxable as staff entertaining. (Another one for the PSA).
Staff trips, team building and business conferences
The tax rules draw a distinction between business conferences, which are held to update staff on company progress, plan new strategies etc., and team building events, which are designed to be fun and to motivate employees.
If you take your employees to a conference centre, and work through a detailed business agenda, an employee tax charge is not going to arise on the costs you incur. On the other hand, taking your staff away on a team building event, a trip to the races, or a theatre event for example, will represent staff entertaining and therefore a taxable benefit. Usually employers will include such costs within a PSA and meet the employee’s tax charge for them.
Questions can arise where elements of an event fall into different categories. Generally speaking, costs which relate to activities that are both business related and also include staff entertaining can be divided. You should then apply the tax charge and NIC charge only to the team building/staff entertaining element. The key point therefore is to ensure that the agenda captures the full business content of each event.
Staff trips including clients
If clients are invited, the costs of an event may represent business entertaining. In this case, the resulting Corporation Tax disallowance means no benefit in kind tax charge will arise. This applies where client personnel and the employer’s staff members attend in similar numbers. It is important therefore to keep records of those attending.
For a free meeting to discuss how the employee related expenditure guidelines outlined above relate to specific circumstances within your organisation, please contact Rob Ennis.