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
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