Tax-free staff party
Posted on 3rd August 2022 at 13:32
Business entertainment generally isn’t a tax-deductible expense, however, there is always an exception to the rule and the exception to this one is a staff party.
What rules do you need to follow?
There are other rules to be aware of that also come into play like the benefit in kind rules. A party may be seen as a perk, but again exemptions apply so if you follow these rules your party could be eligible.
The exemptions include:
• All employees need to be invited or included at separate events such as departmental or geographical-based events (note these don’t need to happen all at the same time)
• The party must be an annual event, and this could be the first one as long as the intention is there to hold it annually. If for some reason the event can’t go ahead one year (for example the Covid-19 pandemic), it doesn’t matter as the intention is there, as long as you hold an event once you are able to again
• The cost per head per mustn’t exceed £150 including VAT and this should include all attendees such as guests, if it exceeds £150 the exemption doesn’t apply to any of the cost
For example, if you are planning on holding a summer BBQ event for staff and want to claim it, you should advertise it to all staff and let them know it is the intention to hold it annually. You could also minute this in a meeting so that it is officially recorded.
It is also worth noting that the timing and nature of the event can vary as long as the event does take place each year whenever possible.
Who can claim this tax-deductible expense?
This benefit is available to companies and unincorporated companies. Unfortunately, sole traders and business partners are classed as proprietors and not as staff so their entertainment costs on their own are not allowable. Shareholders and directors are also treated in the same way. However, if they are part of a larger staff event then their costs may be included and apportioned appropriately.
Can you hold more than one event per year?
Yes, you can hold more than one event per year as long as you still follow the above guidelines and in particular, you do not exceed the cost per head rule of £150. So, for example, you could hold a summer BBQ at £50 per head and a Christmas party at £100 per head. You will need to calculate the price per head based on the total number of attendees so for example if you include partners at the event they would be included in the headcount but the cost would be excluded.
For example, Any Company holds a summer BBQ for its 45 staff (including the two directors) at a cost of £2,000 so this works out at £44.44 per head. They also hold a Christmas party where partners are invited so 90 people attend and the cost is £9,000 so this works out at £100 per head. The two events total £144.44 per head so are below the £150 limit, therefore they can claim for both events under the exemption as they were open to all staff, and they are annual events.
So, it’s time to get planning that staff party. If you have any questions about this exemption, please get in touch.
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