At this time of the year, thoughts turn to the annual office part but did you know that although there is no specific allowance for a ‘Christmas party’ or ‘summer barbecue’ HMRC does allow limited tax relief against the cost of holding an ‘annual event’ for employees, providing certain conditions are met.
A staff event will qualify as a tax-free benefit if the following conditions are satisfied:
the total cost must not exceed £150 per head, per tax year;
the event must be primarily for entertaining staff;
the event must be open to employees generally, or to those at a particular location if the employer has numerous branches or departments.
The ‘cost per head’ of an event is the total cost (including VAT) of providing:
a) the event, and
b) any transport or accommodation incidentally provided for people attending it (whether or not they are the employer’s employees),
divided by the number of those people.
Provided the £150 limit is not exceeded, any number of parties or events may be held during the tax year, for example, there could be three parties held at various times, each costing £50 per head.
The £150 is a limit, not an allowance – if the limit is exceeded by just £1, the whole amount must be reported to HMRC.
If there are two parties, for example, where the combined cost of each exceeds £150, the £150 limit is offset against the most expensive one, leaving the other one as a fully taxable benefit.
The cost of staff events is tax deductible for the business and whilst there is no monetary limit on the amount that you can spend on an annual function, if a staff party costs more than £150 per head, the employees will have a liability to pay tax and National Insurance contributions (NICs) arising on the benefit-in-kind.
You can’t claim the tax relief if it is found that the entertainment of staff is, in fact, incidental to that of entertaining customers. and the VAT element on the event expenses cannot be reclaimed if only directors and/or their partners attend the event. However, the input VAT may be reclaimed if directors and partners attend a staff party alongside other employees.