At first glance Gordon Brown’s April budget appeared to be a cause for celebration – but employers might want to take a closer look before popping too many champagne corks. In his spring 2003 statement the Chancellor increased the tax-free limits for staff parties and long service awards. The amount an employer can spend on an annual party or similar celebration without employees being taxed as a benefit will rise from ¬£75 to ¬£150 per head per year. For long service awards to remain tax free in the hands of an employee the permitted expenditure limit will rise from ¬£20 to ¬£50 per year’s service. But awards must not be cash gifts and only employees of at least 20 years’ service qualify. The Inland Revenue expects the changes to be implemented this summer but it may be several years before their full impact is felt. Nevertheless, some companies have always been prepared to pay P11D liabilities on behalf of employees and others still feel the economy is simply too depressed to justify offering staff parties. Inez Anderson, partner in the people services practice at KPMG, says: “When you look at who benefits and by how much, these types of changes, although welcome, are insignificant in the light of the economic downturn and the rises in NI contributions.” For some time employers have been finding it increasingly hard to provide quality entertainment for ¬£75 a head and, as with long service awards, exceeding the relevant limit normally makes the whole amount taxable – not just the surplus above the limit. Inga Haltermann, banqueting and events manager at Harrods, says: “We certainly did lose some business because of the ¬£75 limit but it never had a dramatic impact. The increase could result in some companies having either a much larger bash or two-a-year on the same scale.” The impact of the long service award increases are severely limited by the Chancellor’s 20 years’ service stipulation. A minority of UK-owned companies are offering the awards after only 10 or 15 years’ service and have become used to paying employees’ P11D liabilities. But many US-owned companies start as early as five or even one year’s service and, because they pay around twice the award levels of UK companies, they frequently exceed the limits once employees have completed 20 years. US counterparts A feeling of being appreciated is one of the main reasons people stay with the same employer and a long service scheme is a very effective way of achieving this. Jonathan Haskell, managing director of employee reward scheme provider Longservice.com, says: “The fact that the government has recognised this with a 150% increase in the limit should prove highly significant. UK employers may wake up to the importance of the issue but the snag is persuading them that they need to spend as heavily on it as their US counterparts.” Budget impact Limits to avoid P11D liabilities on staff parties and long service awards increased in the Budget as follows: • ¬£150 (up from ¬£75) per head per year can now be spent on staff parties. • ¬£50 (up from ¬£20) per year’s service can now be spent on long service awards. • If either limit is exceeded the whole amount, not just the surplus, is normally taxable. • The long service award concessions only apply to those with at least 20 years’ service.