Following on from our earlier blog on general entertaining, you may also want to know more about throwing staff parties and annual events.
Staff parties are a great way of boosting morale, recognising achievement, and thanking your people for their hard work throughout the year. Most common are Christmas parties, but many companies also hold summer events like barbecues. HMRC have provided added incentives for Limited Companies (not sole traders or partnerships, unfortunately) holding these events.
As a company director, you may provide an annual event for yourself, any staff you employ, and your partner, and reclaim the costs against the company. These parties will be exempt from tax and National Insurance, but there are some strict rules to follow, including:
- The party must be an annual event, such as a Christmas party or summer party
- The party must be open to all of your employees (and must consist mostly of employees)
- Shareholders are not included in the exemption if they aren’t employees or directors
- The cost per head must not exceed £150 (including VAT)
Love a good party?
You may decide to hold several events throughout the year, but the total claim for all events must not exceed the £150 per head threshold. To be clear, you could have two parties costing £75 per head, or one costing £150 per head, and options would still be exempt. The cost per head includes all guests; this covers spouses and partners, and even customers (if they are invited to what is predominantly a staff event).
How to work out your cost per head
HMRC states that you 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.’ You can spend your £150 per head however you like: on food, drink, entertainment, accommodation or travel, but this does mean that items such as hotels and taxis must be included in that cost per head budget.
How about a directors-only event?
Sorry, this wouldn’t be exempt. In line with HMRC VAT Notice 700/65, you cannot reclaim the VAT element on your party expenses if only directors and/or their partners attend an event. “This is because the goods or services are not used for a business purpose.”
Exemption, not allowance
What this means is that all of the parties and events in the year must come under the £150 limit combined. It doesn’t mean that you get £150 per head deducted from the taxable amount – if all staff parties throughout the year come out at, say, £200 per head, the total amount will become taxable – so spend wisely!
For further advice on holding staff parties, please give us a call and we will be happy to help in any way we can.