With the Christmas office party season looming into view, small business owners have a lot to contemplate if they want to provide a memorable festive celebration for their staff to enjoy. Rewarding hard-working staff is central to any office party, but it is often forgotten that the HMRC provides limited tax relief against the cost of holding ‘an annual event’ for your company, providing certain conditions are met.
Directors of a company are entitled to provide an annual event for employees, and their partner, and reclaim the costs against the company, as long as the cost per head does not exceed £150 (including VAT). That amount can also include accommodation, transport, food and bar costs – but the event must available to all company staff.
Rather than one big Xmas knees-up, a company may decide to hold several events throughout the year, however, the total claim for all events must not exceed the £150 per head threshold – you also need to demonstrate that the event has indeed been held – rather than simply making a cash claim for £150.
To calculate the cost per head, HMRC’s website explains that a business should ‘divide the total cost of each function by the total number of people (including non-employees) who attend’ in order to arrive at the cost per head.
The VAT element on party expenses cannot be reclaimed if only directors attend the event, as the goods or services are considered ‘not being used for a business purpose’, but they accept that ‘the tax is input tax and is not blocked from recovery’ if all employees are invited.
It should also be remembered that sole traders are entitled to spend £150 on their own private party and, over the past few years, it has become commonplace for sole traders to arrange local events online where like-minded business people to celebrate together.
Happy planning from The Financial Planning Group!