Like many employers, you probably like to treat your employees at this time of year by providing a Christmas Party, but to avoid any tax or VAT implications, you should make yourself aware of the rules.
Entertainment for your employees is tax-free, providing it is available to all your staff, it’s an annual event and the total cost of all events does not exceed £150 (including VAT) per head per year.
If the cost of the Christmas party exceeds that amount it becomes a taxable benefit – and tax must be paid on the whole amount, not just the excess. If an employee brings a guest to the function, they must be included in the £150 allowance for that person.
The good news is that you can reclaim any input VAT, even if you have exceeded the limit, although you can only do so for employees. If non-staff are included, then the claim must be restricted and apportioned accordingly.
However, if customers attend and make a reasonable contribution, then the Input VAT relating to their share can also be claimed – although you will, of course, have to declare Output VAT on the amount they have contributed.
If you would like to discuss this topic in further detail, please don’t hesitate to contact us.
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This post was originally published in December 2018 and has been updated for accuracy and comprehensiveness.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.