5 Mins
Staff parties
As the festive season is fast approaching employers need to be aware of the rules for entertaining of staff to ensure that employees do not end up paying tax on attending the party.
Annual entertaining of staff which does not exceed £150 per employee (inc. VAT) is exempt from tax and HMRC reporting, though employers need to be aware that this is an exemption, not an allowance. To qualify for the exemption, all employees must be invited to the function(s) to avoid a benefit-in-kind arising – though it should be noted that all employees do not have to attend. As staff entertaining is considered a genuine business expense, expenditure on staff parties generally allowable as a business tax deduction for the organisation and the VAT can be recovered (if applicable). Should a business invite their clients/suppliers however the tax deduction and VAT reclaim are adjusted accordingly.
Businesses which host multiple entertaining events for staff during the year can do so provided that the £150 per employee limit is not breached. Where this threshold of £150 per employee is breached, the employees could be taxed on the event that brought them over the £150 per employee limit, though businesses can decide which event to treat as the taxable benefit e.g., a company provides a summer and winter party to staff – the summer party costs £80 per employee (inc. VAT) whereas the winter party costs £130 per employee (inc. VAT). Under this scenario, the business can elect to treat the winter party as being within the exemption and just have the employees taxed on the summer party.
Employers should note however that the staff are unlikely to be happy that they get taxed on attending staff parties. A way to avoid staff paying tax on the staff entertaining can be to either stick to the £150 per employee limit or, if that is not possible, apply to HMRC to have staff entertaining included in the businesses PAYE Settlement Agreement (PSA) – employers should note however where expenses are included in a PSA, this can prove costly for the business as the tax is calculated on the grossed up value of the benefit(s).
Recent announcements
Amongst the many changes in the recent announcement from the new government, we have picked out a few to highlight and comment further on.
It has been confirmed that the intended rise in corporation tax to 25% from 1 April 2023 would no longer go ahead. Instead, the rate of 19% will continue to apply. This means that any company choosing to carry forward losses instead of carrying back where possible may wish to revisit the position.
It was also announced that the annual investment allowance would remain at £1m until further notice, instead of being reduced to £200,000. This reduction was originally supposed to be in effect from 1 January 2022, however an extension was granted until March 2023. This should be welcome news for companies with high capital spend as the super-deduction and special rate allowance also come to an end on this date.
From April 2023, the changes to the off-payroll worker rules (also known as IR35) brought in to force in 2017 and 2021 will be repealed. This means that from the next year, workers providing their services via an intermediary (usually a personal service company), will be responsible for determining their employment status and ensuring the appropriate amount of tax and NICs have been paid.
There are also changes on the income tax – however there are some nuances that may have been missed in the headlines. The change to the basic rate of income tax* from 20% to 19% from April 2023 (a year earlier than previously announced) has been well publicised, however the impact to charities also needed to be considered.
It was suggested by some experts that this change would cost charities £80m per year in reduced Gift Aid. Fortunately, a four-year transition period for Gift Aid relief will apply, to maintain the income tax basic rate relief at 20% until April 2027. Charities will therefore continue to claim Gift Aid at 25p** for every £1 of eligible donation made between 6 April 2023 and 5 April 2027.
This is good news for charities and those who make Gift Aid donations as the donation will go a little further
*The basic rate of income tax applies to non-savings, non-dividend income for taxpayers in England, Wales and Northern Ireland; and to savings income for taxpayers across the UK (including Scottish taxpayers).
** £1 donation grossed up by 20% (£1 x 20/(100-20) = 25p
Capital allowances on commercial properties – s198 Election:
Where a taxpayer buys/sells a commercial property on which capital allowances have been claimed, an often overlooked but vital component to the sale is the amount that should be attributed to assets on which capital allowances can be claimed.
s198 CAA 2001 election
A s198 election is a legally binding agreement between the buyer, seller and HMRC. The election allows the buyer to claim capital allowances on fixtures within commercial buildings while the seller reports the s198 election as disposal proceeds in the relevant capital allowance pools. The rules regarding making a valid s198 claim were tightened in 2012 and 2014 respectively following the inclusion of the “fixed value requirement” and “mandatory pooling”.
Fixed value requirements
From 1 April 2012, whenever a commercial property was sold, a buyer and seller have to agree
the disposal value of fixtures on which the seller had previously made a claim for capital allowance.
Mandatory pooling requirement
From 1 April 2014, where the seller is entitled to make a claim for fixtures in the periods prior to the sale, the value of the fixtures has to be pooled in the seller’s tax return.
A valid s198 claim must also include:
- the disposal value of the fixtures to be fixed by the election;
- the name of each of the taxpayers jointly entering into making the election;
- information sufficient to identify the fixtures to which the election relates;
- information sufficient to identify the relevant land upon which the fixtures are installed;
- the relevant interest acquired by the purchaser (e.g. freehold and long leasehold); and
- both taxpayers’ unique taxpayer references (UTR), and/or confirmation if any party does not have a UTR.
If either of these requirements are not met, a claim for capital allowances for fixtures in a commercial property will be rejected. This will result in the value of £nil attributed to the previously qualifying expenditure for the buyer and seller.
Get in touch
Susan Pattison
