insideKENT Magazine Issue 77 - August 2018 | Page 173

BUSINESS THE DIFFERENCE BETWEEN STAFF AND CLIENT ENTERTAINING BY RICK SCHOFIELD, TAX PARTNER AT WILKINS KENNEDY, ASHFORD HMRC CURRENTLY HAS ITS SPOTLIGHT ON STAFF AND BUSINESS ENTERTAINING, JUST IN TIME FOR THE SUMMER SEASON, WHEN LOTS OF BUSINESSES MAY BE THINKING ABOUT HOLDING CLIENT FUNCTIONS OR STAFF AWAY DAYS. IT IS THEREFORE IMPORTANT TO UNDERSTAND THAT THEY ARE TREATED COMPLETELY DIFFERENTLY FOR EMPLOYMENT TAX PURPOSES – IT IS EASY TO MAKE MISTAKES WHERE EMPLOYMENT TAX CONSIDERATIONS ARE REQUIRED. Staff and client entertaining is an area in which, in our experience, employers quite often make mistakes and, bearing in mind how much some spend in this area, mistakes can result in high claims for arrears from HMRC. These can typically cover four years, with the added burden of interest and penalties. It is therefore an area where a few simple steps can save a lot of expense and worry! Some key considerations are: STAFF EVENTS OFF SITE If you decide to take your staff off site, there are different tax implications depending on the activity that you undertake. If there is a genuine business case, perhaps a conference or away day, then such provision should not result in a taxable benefit for the participating employees. We would only expect such an event to occur once or twice a year. Beware however of any excess al cohol costs which may be taxable and on which you may wish to settle the employee tax liability directly with HMRC on their behalf. This can be done through a mechanism called a PAYE Settlement Agreement. Similarly, any staff events that have no business purpose – such as a night at the races, or a round of golf to reward performance or boost morale – are perceived as an employment-related reward and the cost of provision therefore taxable. WHEN IS ‘LUNCH’ NOT LUNCH? Where a group of employees are away from their permanent workplace for a genuine business purpose across a meal time, this is what is referred to as ‘subsistence’ for tax purposes. In these instances, no tax is payable in regard to the provision or reimbursement of meal costs. However, there is a word of warning when meals are held near the workplace – even where there is a genuine business purpose, these costs do not constitute subsistence as they are near the permanent place of work and not incurred during a business trip. What about client entertaining? If an employee intends to meet a client at a local restaurant or pub, then there is nothing to declare in terms of employment tax, and these costs can be reimbursed to the employee, or the employer can settle the cost directly. This is provided there is sufficient evidence to demonstrate to HMRC that the third party is being entertained for a genuine business purpose. To ensure a business minimises its risk, for business entertaining the employee should be required to provide details of: • Attendees and the organisations they represent • The business purpose of the meeting. If there are a disproportionately high number of staff attending a third party meeting, the claiming employee should also record the reason the attendees needed to be there. If you have any queries surrounding employment taxes, contact Wilkins Kennedy to see how we can help. Local offices: Ashford: 01233 629 255 / Canterbury: 01227 454 861 Maidstone: 01622 690 666 / Orpington: 01689 827 505 Sandwich: 01304 249 997 THE BUSINESS OF ENTERTAINING It is essential that all claims for entertaining are fully itemised and recorded, particularly so for business entertaining. This is currently a strong area of focus for HMRC because they understand that in some businesses a lot of entertaining goes on during the course of a business relationship. They also recognise that it is an area where businesses are not always tax ‘savvy’ or compliant. [email protected] www.wilkinskennedy.com wilkinskennedy wilkinskennedy 173