Should office parties get a tax break?

Some experts are calling on the Government to relax strict rules over

Some experts are calling on the Government to relax strict staff entertaining rules for employees to help kick start the return back to the office after the Covid-19 pandemic. But are they right to? 

The debate has taken a twist as the Omnicron variant of coronavirus throws up the question of whether it is still wise to hold a party.

Rather like headteachers deciding whether to soldier on with the annual nativity play, businesses are considering whether to bring their dispersed teams together to give 2021 a proper send-off.

Those arguments aside, should the party be tax-deductible? Here are two different ways of looking at the question.

“It is appropriate to call on the Government to relax the rules”

Robert Salter, global mobility partner, Blick Rothenberg

As we approach the Christmas season, it is time for the Government to show a bit of goodwill to firms (and employees) generally and the hospitality industry in particular. As such, it is appropriate to call on the Government to relax the rules on Christmas parties (and similar events) and increase the amount that can be treated as “tax-free” each year from £150 per employee to £300 per employee, at least for the 2020/21 UK tax year. There are a number of factors that underpin this one-off change, including:

It provides the hospitality industry with some much-needed support. This is especially important as the hospitality industry is traditionally a key part of the overall UK economy and has been one of the main victims of the Covid-19 pandemic;

  • It provides companies with an opportunity to say thank you to their employees without becoming liable to the punitive tax rates, which can arise from having to use a PAYE Settlement Agreement to settle any benefit-in-kind that arises. Moreover, unlike a bonus, a Christmas party is something that recognises all employees and teams, and the fact that everyone in the team is an important part of a business’s success;
  • It would act as a catalyst to support the Government’s agenda of encouraging people to start coming back into the office and help ensure that town centres etc. are once again areas that are full of activity and life rather than “zombie zones”; and
  • Most importantly, it would be a way for the Government to say “thank you” to the general public – the individuals who have in many cases borne the brunt of the stresses of the last 20 months. While some have genuinely enjoyed home working, many others have suffered from furlough, reduced hours, lost training, the loss of the social network, and struggling with poor technology.

Clearly, the above is subject to wider health considerations – and if the Omincron variant is perceived as particularly high risk – the Government might need to ‘cancel Christmas’, for example, or at least restrict staff Christmas events. However, whilst Omnicron may mean the Government should delay any changes in this area, it would still – in the longer term – be sensible to improve the support that is provided for employers and their hard-pressed employees in this area.

“We don’t need any further exemptions”

Helen Thornley, technical officer, Association of Taxation Technicians

We don’t need any further exemptions for office parties since one already exists.

The key requirement is that the event is an annual event, as distinct from a one-off event. It must also be open to all staff and there is a limit as to how much employers can spend. This cap requires that the total cost of the event is no more than £150 per head. It is even possible for an employer to hold more than one annual event in a tax year tax-free, provided the combined cost is less than £150 per head.

Last year, HMRC also extended its interpretation of “party” to allow virtual parties to fall within the exemptions.  This is a permanent concession. If a party is not enough, employers can even use the trivial benefits rule to make a gift valued at up to £50 to an employee on occasions such as Christmas and other religious festivals, without creating a benefit in kind. 

Given these existing rules and my strong dislike of the unnecessary complexity, I am going the full Scrooge and saying, “No, that’s enough.”

Calum Fuller Calum Fuller is editor of AT and 20 magazines. He's previously served as editor of Credit Strategy, assistant editor Accountancy and began his career at Accountancy Age..

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