You pay tax on staff parties, but can it be claimed back? Well, yes but there are some rules that you need to adhere to claim the VAT back successfully
- It must be an annual function, such as a Christmas party or barbecue,
- It must be open to all employees, ie, not just directors, partners,
- The cost must not exceed £150 per head(inclusive of VAT), go over by one penny and the whole cost becomes taxable,
What’s included in the cost?
The cost of the party is the whole cost, from pick up in the taxi to getting dropped back at home afterwards. It includes food, drink, entertainment, taxis home, overnight accommodation etc.
The limit of £150 per head applies to all those attending the function, not just employees. So, if employees are allowed to bring guests, the total cost should be divided by the total number of employees and guests.
VAT
Input tax on employee entertaining is generally recoverable. Please note however this does not include partners/spouses of staff or former employees. Therefore, if guests are invited it will be necessary to apportion the relevant costs appropriately.
Tax reporting obligations
A taxable benefit in kind will arise if either the limit is exceeded, or the function is not open to all staff or it is not an annual function.
The benefit must be reported on each employee’s form P11D and there will consequently be an income tax on the benefit, the employer will also be charged Class 1A national insurance.
Alternatively, the employer can apply to pay the grossed-up tax through a PAYE Settlement Agreement (PSA).
Multiple annual events
Will still be deductible as long at the combined cost is no more than £150 per head.
If you’ve already used up the £150 exemption on an event, you’ll have to report and pay tax on the full costs of any additional events, even if they cost less than £150 per head on their own.
If you have any questions please give our tax department a call.
