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Going on a Bender

Details have been disclosed of hospitality enjoyed by senior civil servants – with the unfortunately-named Sir Brian Bender of the Department for Business, Enterprise and Regulatory Reform reportedly among the leaders in the field. We leave others to comment on the appropriateness of public servants accepting lavish hospitality: we only do tax. And this seems like a good moment to recap on the tax treatment of such matters.

Attendance at events such as Wimbledon, the proms, the ballet, rugby matches, concerts and the Chelsea Flower Show are certainly "benefits" which would normally be taxable. But there is a general exemption from tax for "third-party" entertainment - that is, where the entertainment is not provided or procured by the employer or someone connected with the employer and is not in recognition or anticipation of particular services performed or to be performed in the course of the employment. This would presumably mean that hospitality provided to a civil servant by the Royal Bank of Scotland would now be outside the exemption!

This exemption applies only to "entertainment and hospitality" and in HMRC's view requires that some representative of the third party is present to act as host: it would not extend to the mere provision of tickets or, say, the gift of a holiday. Although there is a separate exemption for "small gifts" (with broadly the same exemption conditions as for entertainment or hospitality) where the total cost to the donor of gifts made to a particular employee in a given tax year does not exceed £250, this "small gifts" exemption does not apply where the gift is the use of a service. So a gift simply of tickets to an event (as distinct from an invitation to accompany your host to an event) remains taxable.

Gifts of cash from third parties are taxable if they have a sufficiently close connection with the employment. The NIC treatment of tips and gratuities is by now well known – very broadly NIC is due only if the employer gets involved in their distribution to employees – and it follows that illicit payments of which the employer is unaware including bribes, bungs and the like escape NIC (though they do remain subject to tax in the hands of the employee receiving them).

The position of employees of a business which is providing hospitality to its customers or clients is interesting. In principle attending an event – even as a host - is a "benefit". (HMRC do not seem to accept the argument which we once heard from a curmudgeonly bank manager who observed of entertaining his clients that "eating food I don't want in the company of people I don't like discussing things I don't want to talk about" could hardly be described as a benefit). In practice, HMRC accept that an employee who is attending because he is required to act as host is entitled to claim relief for an equivalent expense, so has no net tax charge; but that any employee who attends as a perk will be subject to tax. Quite where one draws the line between an office event to which some clients are invited and a client event which some employees attend may be difficult to see. At any rate it is not possible to take the entire team on a tax-free outing to the races simply by ensuring that one or two stooge clients are also invited.

For more entertaining advice call our helpline 0208 922 9201 or email help@bkltax.co.uk.