The tax-deductible office Christmas party.
The festive season gives us an excuse to enjoy a well earned celebration with our work colleagues and partners.
The cost of an annual staff party or similar function is allowed as a deduction for tax purposes. However, the cost is only deductible if it relates to employees and their guests, which would include directors in the case of a company, but not sole traders and business partners in the case of unincorporated organisations.
As long as the function meets the following criteria, there will be no taxable benefit charged to employees:
1. The event must be open to all employees at a particular location.
2. An annual Christmas party or other annual event offered to staff generally is not taxable on those attending provided that the average cost per head of the functions does not exceed £150 p.a. (including VAT). The guests of staff attending are included in the head count when computing the cost per head attending.
3. All costs must be taken into account, including the costs of transport to and from the event, accommodation provided and VAT. The total cost of the event is merely divided by the number attending to find the average cost. If the limit is exceeded then individual members of staff will be taxable on their average cost, plus the cost for any guests they were permitted to bring.
4. VAT input tax can be recovered on staff entertaining expenditure. If the guests of staff are also invited to the event the input tax has to be apportioned, as the VAT applicable to non-staff is not recoverable. However, if non-staff attendees pay a reasonable contribution to the event, all the VAT can be reclaimed and of course output tax should be accounted for on the amount of the contribution. Where entertainment is provided only for directors, partners or sole proprietors, HMRC do not accept that the input tax has been incurred for business purposes. However, where directors etc attend parties along with other staff members, then the VAT on the cost of them attending is not blocked from recovery.
If more than one annual function is provided the aggregate cost per head must not exceed £150. If the £150 limit is exceeded, then all the costs (not just those above £150 per head) are taxable as a benefit in kind and must be reported on each employee’s P11D. Alternatively the business can enter into a PAYE Settlement Agreement to cover the employee’s tax for them, this would be payable by 19 October following the tax year.
Client entertaining (i.e. hospitality of any kind) is never an allowable deduction for business tax purposes and input VAT cannot be recovered on it. If you invite clients and customers to your party, it is important to consider how to apportion the costs for corporation tax purposes.
For more information and to organise your FREE initial consultation, contact New Forest Tax Accountants.© New Forest Tax Accountants
This communication is intended to provide general guidance on matters of interest and you should not act or refrain from acting upon any information contained in it without seeking appropriate professional advice.
There are some fantastic venues in and around Lymington with great offers for office Christmas parties.
With all this in mind it's a good time to book that Christmas party! Take a look at Christmas party venues in Lymington and the New Forest, which is brimming with some fantastic local venues - including some rather alternative ideas!