Compliance and the Christmas Party
What You Need to Know When Celebrating at Home or Abroad
In the US, UK and around the world, the office Christmas party is famous, or infamous, as the most relaxed workplace event of the year. Whether organising or attending, almost everyone is involved. And while the festive season brings a chance to unwind with colleagues, family and friends, there are still important cultural and legislative factors to remember, both before and after the event itself.
To help you enjoy your Christmas party, and cope with the extra demands of the holidays, we’ve compiled this handy guide, covering social tips and need-to-know information on the personal taxation of staff entertaining.
First off, some advice for avoiding social slip-ups. The reputation for Christmas parties to be ‘relaxed’ in the professional sense does not always mean they are relaxing in every sense, and the threat of mistakes and behaviour that can be costly to professional reputations often hangs over the event. So before you sip that first festive drink, remember that you are all still at work; enjoy yourselves, but understand that you need to maintain good relationships with all those at the company when you return to work the following day: a sobering thought indeed!
Secondly, a point worth considering in an increasingly globalised world, and especially for expats and those celebrating Christmas abroad: always be sympathetic to cultural differences. Not everyone in the office may feel comfortable celebrating Christmas, and may even have their own traditions which are deeply meaningful to them. So try to make any end-of-year parties as inclusive as possible, but don’t force people to be involved in anything they are not comfortable with, and keep festivities appropriate to the people and culture around you.
Tax tips may not fill you with Christmas cheer, but they are just as vital post-party as they are in the run-up. Staff entertaining involves particular rules around personal taxation, and these cannot be boxed up with the decorations and put away till the following year. So, courtesy of the experienced tax professionals at GTN (Global Tax Network Ltd), here is a brief overview of what you need to know:
For an annual event such as a Christmas Party (or a Summer Ball), the UK allows the first £150 as being tax/NI exempt each fiscal year, provided that it is open to all employees. This is considered per work location for larger companies. The £150 is the cumulative total for the year, and if it is exceeded, then all (not just the excess over) of the entertainment costs are deemed to be taxable/NIable benefits in kind to the employee. As such, they should then be reported on the P11D annual forms. As it is usually hard to quantify the benefit each employee received, and the time and admin costs to produce the P11D, most employers will usually look to bear the tax cost for each employee by grossing up the tax and the NI through a PAYE Settlement Agreement (PSA). Of course, some employers would want to meet this cost on behalf of their employees anyway.
For staff entertaining that is occurred ‘on occasion’ and where the event is not considered ‘lavish’, the US does not have a set monetary limit or fringe benefit for the employer to consider. US employers can have what is known as an ‘accountable plan’ where all types of benefits and unusual employment payments (i.e. the related costs for an employee who may be required to relocate) are considered and adhered to, not dissimilar to a staff handbook. In this scenario, it is not reportable through the payroll or annual form W-2 tax certificates, and US taxes and social security are not, therefore, due. If it falls into the ‘lavish’ bracket, or an employer does not have an accountable plan, the staff entertaining payments would be subject to tax and social security via payroll by employee or employer on a grossed-up basis.
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From all the team at EMS,
We wish you a calm, carefree and compliant Christmas!