Can they get a Corporation Tax deduction for this and are there any benefit in kind implications for the employees? Some of the attendees were employees of a subsidiary company, does that make a difference??“
A: While s1298 of CTA 2009 generally prohibits the deduction of expenses related to entertainment for Corporation Tax purposes, there is an exception at s1299(3) where the entertainment is provided for employees of the company, unless:
“(a) the entertainment is also provided for others, and
(b) the provision of the entertainment for the employees is incidental to its provision for the others.”
In practice, HMRC extend the definition of “employees” for these purposes to include retired members of staff and the partners of current and former employees, but not employees of other associated or group companies. However, the costs incurred by a group parent where employees of subsidiary companies attend such an event and where the parent makes an appropriate recharge to the subsidiaries involved are allowable. See BIM45033.
As with the Corporation Tax deduction, the starting point for benefit in kind purposes is that each employee or director is taxable on their share of the expense incurred by an employer in providing a benefit for employees. Again, as with Corporation Tax, there is an exemption in this case found in s264 of ITEPA 2003 for annual parties and functions.
An annual party or similar function provided for an employer’s employees and available to them generally or available generally to those at a particular location will be an exempt benefit, providing the cost per head of the party or function does not exceed £150. If two or more such parties are provided in the same tax year, say for example a summer event and a Christmas one, then to be exempt benefits the aggregate cost per head across the two events must not exceed £150.
If the cost per head does exceed £150, then the whole of the cost becomes a taxable benefit to be apportioned between the attendees. The £150 figure is an exemption threshold, not an allowance.
In calculating the cost per head, your client should work out the VAT inclusive cost of providing the function, including any travel or accommodation provided for attendees such as the cost of the taxi fares mentioned. That total cost is then divided by the total number of people attending, including any non-employees.
HMRC provide further guidance on the benefit in kind aspects at EIM21690.
The Croner-i Direct Tax Reporter guidance is at 433-750.
