HMRC rules currently allow employers to spend up to £150 tax-free per employee per tax year, on events such as Christmas or summer parties. This has been the case since 2003.
The tax and advisory firm Blick Rothenberg has called on the government to double this amount to £300 as they believe the current limit is “massively out-of-date”.
The firm also states that increasing the limit to £300 per employee per year would help reduce the overall costs faced by employers and encourage them to provide employees with a ‘genuine thank you’ for all their efforts throughout the last two years.
Specifically, the raised limit would mean that in most reasonable cases, there would be no need for employers to report any taxable benefit-in-kind charge via a PAYE settlement agreement (PSA).
An additional benefit of changing the limit is that it would also provide businesses, particularly in the hospitality sector, with some ‘much needed support’ as they continue to try and recover from the Covid-19 pandemic.
The firm states that where employers need to cover the tax cost of a Christmas party via a PAYE settlement agreement, they can face an effective tax liability, including taxes and National Insurance contributions (NIC), of up to 107% of the core value of the Christmas party.
This can mean that the effective, cumulative cost to the employer of providing a Christmas party can easily in some cases be up to 200% of its headline, initial per head cost.
Robert Salter, a tax service director at Blick Rothenberg said: ‘Employees need to ensure that they avoid making some common mistakes, when it comes to budgeting for their Christmas party.
‘For example, the £150 value mentioned above is not an ‘allowance’. Hence, if the per head cost of the event is above £150, the full value of the event becomes a taxable benefit and not just the excess amount over the £150 threshold. It can be a minefield.
The tax-free amount should really be increased, and the rules should be simplified.’