Company away days happen for many reasons and fall under a variety of labels, from annual conference, business strategy review, team building event, or a simple company away day. According to a leading law firm, HMRC are about to start charging employers and employees additional tax and national insurance contributions when businesses host company away days for their employees. In particular, if there is a large social or fun element to a company day, it is likely to be treated as a treat and taxed as a benefit.
This is a highly controversial move because although corporate days are great fun and a very powerful motivator for businesses, they are still technically work and not usually something employees can opt out of.
What are HMRC looking for and what can you do to avoid the finger of suspicion?
Provided there is concrete evidence to prove that the event was conducted for a clear business reason, the costs associated with holding such events up to a maximum value of £150 per employee each year, can be tax free. For instance, if the day was used to discuss future business strategy, announce a new product range or review business performance, this is usually acceptable.
Compare this with a special event held to reward employees; this is not tax exempt unless the majority of time is spent discussing business issues, and this can be proved. Similarly, if a company event is excessively lavish, or held in an exotic overseas location when there is no good reason why, this can be argued to be a reward rather than being held ‘’wholly exclusively and necessarily” for the purposes of the employees’ jobs. And it is this wholly, exclusively and necessarily label which ultimately decides the position.
As well as looking into more lavish company away days, HMRC is also known to be monitoring more mundane company events to evaluate whether they could be considered to be staff entertainment. This includes team meetings, lunches or get-togethers that might be taking place near the normal place of work. So next time you have a Friday team briefing at the local pub and combine it with a light lunch for staff, think carefully about whether this could have a tax implication. Regular expenses claims for drinks and food at a local venue are very easy for HMRC to spot and question.
When considered in isolation, any additional extra tax and NICs payable for questionable items of staff entertainment can be quite small and you might think it is nothing to be concerned about. However, if this practice occurs regularly and over a number of years, it can add up to a significant liability. Our advice is to carefully plan company events to ensure they meet the criteria of being more work and less play.
If you have any questions relating to employee benefits and tax please contact Lesley Stalker by emailing las@rjp.co.uk.