The implications of staff entertainment and PSAs
21/12/23
In the midst of party season, we thought it would be apt to remind you of the benefits of staff PSAs. You’re probably aware that your annual staff party is typically exempt from tax and National Insurance, if it is open to all your employees; is an annual occasion e.g., festive party or summer barbecue; and costs £150 or less per person.
However, if the party does not satisfy each of the criteria, then your employees will have to pay tax and NI on the whole cost. Engagement in a PSA will cover your employees’ party tax and NI obligations.
Are the costs of entertaining your staff going to impact their personal taxes?
The current focus on employee wellbeing and company culture means that, in a lot of cases, employers are spending more money on workplace initiatives for their team. However, if these initiatives increase your employees’ tax bills, it won’t do much good for morale!
You should consider the tax liabilities associated with increasing your staff entertainment offerings, and how you could combat these. A number of employers engage in PAYE Settlement Agreements (PSA), which allow them to make an annual payment to cover the tax and National Insurance (NI) incurred for their employees. It’s important to note that this would not cover your employees’ tax liabilities for wages, high-value benefits, or cash payments. Instead, it covers minor, irregular and impracticable benefits.
If you choose to enter into a PSA, it will not only decrease your chances of disgruntled employees, but it will also mean that you don’t need to:
- Put the items through your payroll to work out tax and NI.
- Include the items in your end-of-year P11D forms.
- Pay Class 1A NI on them at the end of the tax year (instead, you’ll pay Class 1B NI as part of the agreement).
You will find that some employee expenses are covered by exemptions, so you won’t need to include them in your end-of-year reports – these have replaced what used to be referred to as ‘dispensations’.
So, what expenses and benefits come under a PSA?
What exactly does it mean for an expense or benefit to be ‘minor’, ‘irregular’, or ‘impracticable’?
Minor benefits and expenses are pretty much what the name suggests. They include:
- Incentive awards (e.g., for long service)
- Telephone bills
- Small gifts and vouchers
- Staff entertainment (e.g., an event ticket)
- Business expenses that exceed the daily limit when travelling overnight
Irregular benefits and expenses refer to things that do not occur regularly throughout the tax year – they are likely to occur on one-off occasions for employees. Furthermore, they also include things that employees are not contractually entitled to, such as:
- Relocation expenses over £8,000
- The cost of attending overseas conferences
- Expenses of a spouse accompanying an employee abroad
- Use of a company holiday flat.
Impracticable expenses and benefits are where staff entertainment comes in – they refer to items that may be hard to place a value on or divide between individual employees. Examples could include:
- Staff entertainment costs that are not exempt from tax or NICs
- Refreshments, such as tea, coffee and biscuits
- Shared cars
- Expenses for personal care, such as hairdressing.
Applying for a PSA
Does a PSA sound like something that could benefit you and your workforce? You can apply to enter into an agreement online (or by post if you can’t apply online). An agent can also apply for a PSA on your behalf, providing they have a signed authorisation letter.
If you have any queries about the information in this article, please do not hesitate to get in touch with a member of our team!
