How to keep your office party tax free

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Suppose you decide to plan a business-related event. You may be wondering if your annual get together for employees is an allowable expense for tax purposes? The good news is that HM Revenue & Customs (HMRC) does offer a small tax break for holding an ‘annual event’, providing specific criteria are met. However, the relief only applies to ‘annual parties’ (summer or Christmas) open to all your staff and is fixed at £150 per head (inclusive of VAT).

In this article we look at how you can claim this tax relief for your annual staff event.  

How is the £150 per head party allowance calculated?

his cost per head covers all party costs, including accommodation overnight, food and drink and transport home. Make sure you budget wisely as you must not spend over this figure (not even by one penny) because if you do, all the costs (not just those above £150 per head) will be taxed as a ‘benefit in kind’. 

Suppose your business operates from more than one location. In that case, you can still have separate parties for your various staff working across different departments, but the cost of £150 per head still applies to remain exempt. It is really up to you which Christmas or summer event you choose to claim. The £150 per head threshold applies to all those attending, including events where a guest or partner has been invited. 

If you have a few spaces available, do not offer them to your clients or customers as this is classed as ‘client entertaining’ and is therefore not tax-deductible.

To calculate the cost per head, HMRC states that “you should divide the total cost of each function by the total number of people attending (including non-employees) to arrive at the cost per head.” You can find more guidance on HMRC staff entertaining, annual parties and other social functions on their website

Claiming VAT on your staff event

If your business is VAT-registered, you may claim back VAT on a staff office party, providing that the event is for your staff only and not a social occasion for customers or clients you have invited your staff to. Also, your VAT claim cannot extend to any guests or partners your work colleagues may bring along.

What does not qualify as an annual event?

A one-off event that does not happen once a year is a team-building day out or a retirement party.

Annual staff event cost examples:

Example one: 

You hold both an annual summer BBQ and a festive party. The cost per head for the Christmas party is £120 per head, and the cost of the summer BBQ is £25 per head. Your total annual cost has not exceeded £150 per head, and therefore both events are non-taxable benefits for the staff.

Example two:

Suppose the BBQ had cost £40 per head. The total would be £160 per head. In this situation, you can choose which event you want to treat as exempt and declare it as a taxable benefit for your staff. You should declare the summer BBQ as a taxable benefit in this example.

Please get in touch with us if you need help with arranging your annual staff event in the most tax effective way.