Christmas parties for staff: can I claim tax relief on the Office Christmas Party and must all staff attend?
The cost of the Christmas staff party can be accounted for as ‘staff welfare’, forming part of general staff costs and is wholly tax deductible.
You can include costs such as transport to the party venue, venue hire, decorations and food and drink.
The only thing you need to record is the number of staff you entertain, as well the associated costs of the christmas party.
Be careful: if you plan to invite clients along to the party, you can claim tax relief for the staff cost incurred only.
Tax Reliefs are not just for Christmas!
Who says the taxman is not good to you?
If you meet the following conditions, your staff Christmas party or other staff events you host throughout the year can be claimed as a tax-free benefit:
- The total cost should not exceed £150 per head, per year.
- The £150 budget per head includes VAT
- You can claim back input VAT
- If you spend over the £150 limit, for example £155, the whole amount will be taxable. Therefore it is a taxable limit not an allowance.
- There are strict rules when claiming this valuable tax relief – it must be for entertaining staff only.
- The event must be open to all staff in a given location. You are therefore not obliged to entertain staff in other branches or departments or locations.
- The event must not include only Directors of the company, unless the staff are all directors.
Other guests may be invited too if you wish but the primary purpose of the event must be that of entertainment for staff.
How to claim this valuable tax relief as an employer
If you make use of the £150 tax-free limit per staff head, you do not need to report this on a P11D form for each employee.
If you do spend over this £150 limit of a year, you can still claim for a taxable benefit in kind, and you may decide that you cover any additional costs on behalf of the staff, and cover the cost of income tax and national insurance contribution payments. is no monetary limit on the amount that an employer can spend on an annual function. This is known as a PAYE settlement.
Claiming VAT on staff annual events
You can claim input VAT fully on the cost of the event. HMRC do not view the payment as entertaining, rather staff welfare. The exceptions to the rule are if you are an owner-manager or one-man band business or if the function is mainly for the directors, and therefore excluding staff.
Be careful: If you are also entertaining UK clients at an event, you can only claim input VAT related to staff costs, not the clients.
If you are entertaining overseas clients, there may be an opportunity to claim input VAT, but we suggest you seek advice from an accountant, such as Southside Accounting, to ensure you know your VAT obligations fully.
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Written by Shaima Todd.