What payment details should be included in a contract of employment?
Should any benefits available to an employee be listed in the contract of employment?
Is it ever permissible for an employer to withhold bonus payments?
How should an employer go about setting up an employee share scheme?
When may an employer withdraw the use of a company car?
Are employee benefits taxable or non-taxable?
Is the company Christmas party a taxable benefit?
Normally Schedule E income tax is chargeable
where an employer provides a social function for employees. However, the Income
Tax (Earnings and Pensions) Act 2003, section 264 contains an exemption from
the charge to tax. The exemption applies to an annual party, which includes a
Christmas party or similar annual function provided for employees and which is either
available to employees generally, or available to employees generally at one
location where the employer has more than one business location. Where an
employer organises its workforce in one location into separate departments, an
annual party may be provided separately for the different departments, so long
as a party is available generally to all staff at the location. A directors'
Christmas lunch, for example, would not be covered by the exemption because it
is not available to staff generally.
If the employer provides one annual function
for employees, no charge to tax arises provided that the average cost of the
event per head does not exceed £150. If the average cost per head does exceed
£150, then the full amount of the benefit of the function will be chargeable to
tax. If the employer provides two or more annual functions, no charge to tax
arises provided that the costs per head do not exceed £150 in aggregate. If the
total cost per head goes over £150, then whichever function best utilises the £150
is exempt and the other functions are fully taxable.
The cost of the function includes VAT and the
cost of any employer-provided transport or overnight accommodation. To
calculate the cost per head, the employer should divide the total cost of the
function by the total number of people who attended, including any
non-employees, and not by the total number of people actually invited.
The figure of £150 is not an allowance. With
regard to functions that are outside the scope of the exemption, employees are
chargeable to tax on the full cost per head, not just on the excess over £150.
To give an example, if a Christmas party costs £100 a head and a summer ball
costs £75 a head, then the Christmas party will be exempted (as this makes
better utilisation of the exemption) but the summer ball will be chargeable to
tax in full, not just on the excess over £50. Thus, in this scenario, the
employees will be chargeable to income tax on the benefit of £75, not £25.
Finally, it is the event that is exempt, not the employee. In the example cited
above, if an employee chose not to attend the Christmas party but did attend
the summer ball, he or she would still be chargeable to income tax on the
benefit of £75 because this event is not exempt. The fact that he or she failed
to attend the event that was exempt is irrelevant.
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