Office Christmas parties - HMRC's view
With the Christmas season upon us, it is a good time to look at the tax treatments for staff entertaining.
Whilst the cost of entertaining customers and business contacts is not an allowable expense for tax purposes, entertaining staff is allowed so long as the entertaining is for business purposes, and not incidental to other entertainment. So your office Christmas party is an allowable expense for tax purposes, however the devil lurks in the detail:
As long as the entertainment is for business purposes, any VAT suffered can be reclaimed, but it may be important to note the following:
1) If "Non-staff" are being entertained, their portion of VAT cannot be reclaimed
2) Entertainment that is only for directors or partners/sole traders is not allowable.
3) Former staff, job applicants, freelancers & contractors are considered to be Non-staff as are shareholders that are not employees, partners, sole traders.
Whilst the cost is an allowable expense for the business, there is a point at which the expense becomes a benefit-in-kind for your employees. The benefit of one or more annual staff parties (including Christmas) is not taxable on the employee if the total cost per annum is less than £150 including VAT. So in an example where there are 3 staff parties in a tax year costing £70 per head each, the whole cost of the third party is taxable on the employee, and a P11d must be filed.
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