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The Tax Consequences of World Cup Office Parties

2 min readBy: Gerald Prante

One of the problems with any income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. is that it entices individuals to accept compensation through non-taxed means, some of which are referred to as “fringe benefits.” But England is taking aim at employers who compensate their employees indirectly by throwing office World Cup parties. From Financial Director:

Workers enjoying World Cup parties put on by their employer could be hit with a nasty tax bill, according to Blick Rothenberg, a tax specialist firm based in London.

Under income tax rules, employers who invite staff to social functions have to declare the hospitality to HM Customs & Revenue if the cost per worker amounts to more than £150 over the course of a year.

While Christmas parties are generally exempt because it is unusual for employers to spend that much per head, Blick Rothenberg said the extra expense of World Cup hospitality could take some workers over the limit.

If the hospitality for the year exceeds £150 staff would then [be] charged income tax at their highest marginal rate on the whole value, not just the excess.

Employers have the option to take on the expense, but the firm said many may choose not to.

While this may raise individuals’ tax burdens, this policy is consistent with the theme of neutrality in an income tax system. Neutrality means that all sources of compensation should be treated equally by the tax code. But what constitutes income is truly a question that is difficult to answer, and even if it is answered, the amount of income may still be difficult to measure. This is one major reason that many economists have looked for other tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. s, like consumption.

Under the existing income tax system in most countries, including the United States, there are a myriad of ways in which employers compensate their employees so as to avoid income taxation. These benefits are often difficult to measure (and enforcing taxation of them is also difficult, even if they could be measured) and can range from plush offices with a great window view to the privelege of sitting in the company’s luxury box at local sporting events.

For more on issues concerning the federal income tax, check out our section devoted to the topic.