The summer has finally arrived and your team have been working hard. Many SMEs are thinking about doing something nice, a team lunch, after work drinks or maybe even a full summer party.
The good news is, HMRC is fully onboard with this and there is a specific exemption that means that the entire event could be completely tax free for both you and your employees. However there are a few rules and missing these could turn a nice gesture into an unexpected tax bill.
HMRC allows up to £150 per head per tax year for annual staff events things like summer parties, Christmas dos, or team away days. If the cost per head stays within that limit, there’s no benefit-in-kind tax for your employees, and you can reclaim the VAT and offset the cost against your profits.
The key conditions are:
– The event must be open to all employees (not just directors or a select group)
– The £150 is a per head limit, not per employee. It includes guests, so if partners are invited, they count too
– It covers the full cost: food, drink, venue, transport, accommodation
– It’s £150 across the whole year. If you do a summer party and a Christmas party, the £150 has to cover both combined
– Go even £1 over and the entire amount becomes taxable, not just the excess
What about smaller, more informal treats?
If you want to do something more spontaneous, a round of ice creams on a hot day, a coffee and cake Friday there’s also the Trivial Benefits exemption.
This covers non-cash benefits worth £50 or less per occasion, as long as they’re not a reward for work and not contractual. No paperwork, no reporting. Just a nice thing you did for your team.
Again, directors need to be careful there’s an annual cap of £300 on trivial benefits for directors of close companies. For regular employees there’s no annual cap, but HMRC can question it if the ‘trivial’ benefits start to feel like a pattern of remuneration.
Before you book anything, run the numbers and ensure your bookkeeping is accurate and the transactions are recorded correctly in your accounts. Check what you’ve already spent this tax year that might count toward the £150. Consider whether partners are included. And if you’re a director, factor in your trivial benefits cap.
It is worth speaking to your accountant to ensure you are falling within the criteria because if they are not accounted for correctly it can also affect your employees.
However don’t let that put you off treating yourself or your team. Here are Dash Accounting Services we support our clients to ensure they are within the limits and know what key benefits are on offer.
