How much tax do employers pay if they bought a cake or a dinner for employees?

[Whisky2014]

My husband came home from work today saying he found out if a company offers a reward (say buys cake for the employees in the office) that would go through at 60% tax. Is that true?!

NO

It's not quite true. I think where this is come from is when a benefit is provided to employees, but they are not taxed on it on their P11D - because the business has a PAYE Settlement Agreement in place whereby they pay the tax on the employees' behalf - it needs to be grossed up by 60% to calculate the benefit. So if something cost 100 it'd be grossed up to 160.

When we put an expense claim in for staff entertainment we get a warning to check it's coded correctly because of this.

Staff entertaining is an allowable business expense when calculating your taxable profits, but it's not offset against your tax bill. Just deductible in the same way your stationery purchases are.

But staff welfare and staff entertainment can be covered by s198 claims

It is deductible but there can be a charge if there’s a taxable benefit. The rules are (unsurprisingly as it’s UK tax law) hideously complicated. But yes, a reward meal for good work can easily cost 160% of its actual cost to the company in PSA tax (the alternative is that the rewarded employees pay it...!)

Presumably very little if they are a large tech company such as Facebook or Google?

So say a manager buys his team pizza. How would that go through?

Staff welfare

It might depend on each company's policy (and the size of the business and desire to get it right!). If you code an expense claim as Staff entertaining, then that's what it'll be. If it's meals for "working in the office past 9pm" (an example of my company's options for expense claims) then that wouldn't be classed as a taxable benefit.

Back to your cakes point...It probably depends on how the claim is made. We just buy treats like that out our own pocket rather than expending as would our bosses I'm sure. But if we went for a team dinner and bowling for example, then that'd be entertaining and treated as a benefit.

Back to your cakes point...It probably depends on how the claim is made. We just buy treats like that out our own pocket rather than expending as would our bosses I'm sure. But if we went for a team dinner and bowling for example, then that'd be entertaining and treated as a benefit. and so how much tax would the company pay?
Hubby bought £90 worth of cake for a team do and his manager made a comment how the company would pay 60% on it. I just can't see that!
It's a large company almost 99,000 employees.

Cake would be a trivial benefit so long as under 50 so no tax due. Dinner for staff is allowable once a year and needs to be less than 150 per head to avoid a benefit in kind.

Yes the previous post is correct - benefits that are not directly attributable to a particular employee (eg dept drinks, treats like meals out or gifts etc) are taxed under a paye settlement. This means the company pays both the paye tax and national insurance that should have been paid by the employee. The calculation is relatively complicated but broadly think of it as paying 40% income tax plus 13.8% national insurance.

Small gifts don't count though if they are 'trivial' ie less than £50.

Loads of half-truths on this thread!

Taking the cake example. It depends if the cake is being offered as a "reward for services" or not. If it's because e.g the team has met their target, then it's a reward for services and is taxable (whatever the value). The cost should then be reported via the employees P11D or on a PAYE settlement agreement (PSA).

If it's not for services - eg it's Bob's 50th - then assuming is less than £50 it would be considered a trivial benefit and not taxable. If it's more than £50 then it can't be trivial and again needs to be reported on P11D or PSA.

TrentBridge is correct. And re the comment above about Facebook and Google - this demonstrates exactly the power of a Daily Mail headline. Facebook and Google pay PAYE and NIC for their UK employees just like any other UK company.

Thanks @TrentBridge yes, I think the we were talking about what would be "reward for service". The company also do things like employee recognition awards where you may £250 or£500 or so. We were just thinking, how can smaller company offer things like that if they get hammered in tax?!

All companies, large or small, pay the same (assuming employees have the same tax rates!) for these benefits. I’m not sure, other than having made more profit per head, it effects small companies more?

Yep buying employees cakes is seen as similar to giving people say £50 worth of drink in a staff night out and is taxed as though you gave them the salary to buy £50 worth of stuff out of net pay (hence the 60%ish gross up).
Xmas parties are exempt (under £150 per person) for example. The company pays the tax.

Christmas parties (so long as they happen every year, cost less than £150 per head and all employees are invited to attend) are classed as an annual event and therefore not subject to income tax. Neither the employee or the employer will need to pay income tax or NICs on the value.

The cake, as I said before, depends on the reason for why it's being provided. It could be considered taxable and if so the company may, if it chooses to do so, pay the associated income tax and NICs through its PSA.