Wining and dining your staff – What it can mean for tax and productivity.

Everything seems to be about Covid at the moment so it’s nice to write an article that isn’t directly about the pandemic. Although, in fairness, it has had an influence because what prompted this particular piece is the fact that almost every venue in Northampton seems to be offering Christmas options again. Now that most of us are back in the workplace inevitably thoughts will start to turn to the festive season. As an accountant, it is not really our place to advise Northampton business on the right way to treat your staff of course, but we are often asked about whether we think social events are worth the cost. The other regular question we get is about what staff benefits such as the annual Christmas dinner and gifts mean in terms of tax.

My friends in HR and recruitment are particularly vocal about the positive results of having a social aspect to the workplace. Specifically, they will talk about how it helps to encourage an increase in job satisfaction. As well as the cultural expectation of the ‘works do’ research seems to suggest that encouraging social interaction in your team will also encourage loyalty, a sense of community, inclusivity and the feeling of belonging. These are far from trivial because they add up to an overall feeling of job satisfaction. As any Human Resources person will tell you, job satisfaction means increased retention and avoiding the cost of staff churn. In effect, a happy team stays longer, and your business doesn’t need to bear the cost of replacing them.

Possibly even more importantly though a happy team will usually be more productive. In fact, according to a study from the University of Warwick, happy employees are likely to be around 12% more productive. The study is a few years old now and doesn’t take into account factors such as the increase in working from home, but I doubt things have changed much. If you were to convert that 12% happiness boost to the bottom line for your business, it would almost certainly make a big difference.

Although possibly not if your employee is then taxed for attending you ‘free’ social event.

So, the issue of financing these events comes to the surface as part of the wider question on return on investment and taxable benefits. There are three basic things to remember:

  1. Exempt benefits are usually considered to be events such as Christmas parties and similar. The upper limit on spend for these events is £ 150 per person per year. There are conditions (aren’t there always with HMRC) but in actual fact this is pretty clear cut. Remember though that this is an annual thing, so if you decide to spend £75 per person on a Halloween party and £75 per person on an Easter egg hunt, that would be fine. As soon as you go over that amount though you could have a tax issue.
  2. Almost anything outside the above, whether gifts, events, perks or any other benefit will potentially carry a tax requirement for the employee. This must be declared, and you need to talk to your accountant about the best way to deal with it. That is unless it is covered by…
  3. Trivial benefits. The exception to the above is where the benefit is considered trivial. For example, you are allowed to buy champaign and flowers for a birthday or give everyone a Christmas present providing these are considered ‘trivial’ in nature. If they are trivial then they are not perceived as taxable benefits. At the moment the value of trivial is £50 or below.

Helping keep your employees happy with little gifts or the occasional night out could well generate a feeling of loyalty and job satisfaction. That will likely result in your generosity being returned in a productive workplace that increases your bottom line.

However, as always, there are a few potential slips and traps that could result in a bit of HMRC red tape if you get them wrong.

Call us and let’s plan the right way to fund your team events for tax purposes.

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