🎄 Annual Parties – What Employers Need to Know 🎄
As Christmas approaches, many companies are planning their annual parties – a time to thank employees for their hard work and, of course, have a bit of fun. But before finalising plans, it’s important to understand the rules for claiming tax relief on these events.
The £150 Per Head Rule
HMRC allows businesses to spend up to £150 per head on annual events such as Christmas parties or summer BBQs. This includes VAT and covers all costs related to the event. If you exceed £150 per head, even by a small amount, the entire cost becomes taxable as a benefit to employees.
Key Rules to Follow
Annual Event: The party must be a recurring event, such as a Christmas, BBQ or company year end party. One-off events don’t qualify.
Open to All Employees: Every employee must be invited, regardless of their role or department.
Guests: Each employee can bring a guest.
How to Calculate £150 Per Head
Work out the cost per head by dividing the total event cost by the total number of attendees, including guests.
Example:
Total Cost: £2,880 (£2,400+VAT)
Attendees: 15 employees + 10 guests = 25 people
Cost Per Head: £2,880 ÷ 25 = £115.20
This would be within the limit, so the entire cost would not be taxable as a benefit to employees. However, if your total event cost rises to over £3,750, the cost per head would be over £150, and the entire amount would lose its tax-exempt status.
What Costs To Include?
When calculating the cost, include food, drink, entertainment, travel, and any other associated costs. The £150 per head covers all these expenses, so plan carefully to ensure you stay within the limit.
Reclaiming VAT
For VAT-registered businesses, VAT on costs related to employees can be reclaimed. However, VAT for non-employee guests (such as partners) cannot be reclaimed, so ensure you separate these costs when filing.
It’s Usually a Christmas Party
While HMRC doesn’t specify the type of annual event, most businesses use the £150 allowance for a Christmas party. For full details on what’s exempt, take a look at HMRC’s guidance here.
By sticking to the rules, you can enjoy celebrating your team’s hard work this year without any unexpected costs from the taxman.