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When retirement party is business entertainment

This month, the Tax Discussion Groups considered whether a retirement event should be treated as a taxable employment expense or business entertainment

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June 2019

This month’s case involves a limited company that last year threw a retirement party for a couple of key members of staff who had left the firm during the 2018/19 tax year.

The retirement party cost over £2,000. It had been attended many of the company’s employees as well as their partners. During 2018/19, the company had also used its staff party allowance of £150 per person earlier in the year. The retirement party was a one-off second event.

The group discussion concerned the staff party exemption. It was confirmed that although this was typically utilised by a Christmas party, the legislation did not stipulate this. Accordingly, it was noted that this event could be considered as a taxable benefit in kind on the staff who attended, which would need to be declared on the Company’s Form P11D. Alternatively, it could be included in a PAYE settlement agreement.

The number of employees who had attended could not be confirmed but it was thought likely that the trivial benefits threshold had been exceeded during the period by the company. The accountant who raised the case at the discussion group said he would check whether the company had invited its customers and major suppliers as well.

Many of the accountants attending the discussion group thought that they would be likely to consider this as customer entertaining. They explained that they would assume that while the event was part of the employees’ retirement, it probably also had the additional ulterior intention of ensuring that the personal goodwill the retiring employees had generated was transferred to the company and to other remaining employees. It was likely that the company’s senior management would have invited the main contacts who had dealt with their retiring employees and sought to engage with them to ensure the continuing business relationships.

It was felt that this was in a “grey area” in this respect, as while the provision of a staff retirement event would be a taxable employment expense, the presence of business contacts in sufficient numbers would constitute business entertaining.

Each month (with the exception of July and August) the Tax Discussion Groups in Croydon & South East London meet to discuss client tax issues on a no-names basis. These meetings are free to attend and normally cover over a dozen tax issues raised by those attending.

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