On The Spot Blogs
Let The Taxman Contribute To Your Christmas Party
With Christmas now only a month away, it’s a good time to remind ourselves of what employers can provide to staff and directors, tax free.
This year we may see a mix of virtual and in person events, with in person events possibly being in small groups to help prevent an outbreak affecting large parts or the whole company.
What are the limits?
You can spend a maximum of £150 including VAT per staff member plus another £150 for a guest in total over a tax year. The main condition is that ALL members of staff at that location must be invited. A location is a bit more blurred this year, so keep your e-invite to show that all employees contractually employed at a certain site are invited.
In addition to the £150 annual party limit, you may also send a gift to staff with a value up to £50 including VAT, such as a Turkey, wine or chocolates.
What is the tax treatment and accounting required?
The cost is fully tax deductible with no benefit in kind income tax or national insurance to worry about. Your staff will feel appreciated and you save 19% corporation tax. Ensure that the costs are called Staff entertainment or Christmas party in your Profit & Loss Account.
The £150 includes all costs which this year may be a hamper sent to all attendees to link up on Zoom at the agreed time, possibly with the employer hosting a comedian, musician or quiz for attendees to enjoy.
Divide the total cost of each function by the total number of people, including guests, to arrive at the cost per head.
The VAT is fully recoverable when paying for staff entertaining. If you make a small charge to your staff's guests and pay over a small amount of VAT, the VAT on the total cost for the guests is also fully recoverable.
Similarly, small gifts up to £50 are fully tax deductible and VAT may be recoverable if only one small gift is made during a year. Perhaps these costs could be called Staff welfare to help keep them separate from your £150 calculations!
NB Ensure you don’t go over the £150 or £50, otherwise the entire amount is taxable.
I’m a director and don't have any staff. Can I benefit from this favourable tax treatment?
As you are the only director/employee you might think you can't have a Christmas party - wrong! And it probably won’t need to be virtual if within the general Covid meeting up rules.
You can avail yourself of the £150 per head exemption as a member of staff (the only one!) and also a guest. You can also have a gift with a value of up to £50, but you’re likely to be restricted to doing this up to an annual value of £300 so check what other company gifts you’ve taken so far. In this case, we would advise that VAT can't be reclaimed.
Now you can have a fabulous tax subsidised Christmas party !