With the Christmas season very nearly upon us, Kent business owners are looking to finalise their Christmas do’s and let staff know the plans. Whilst the tax rules might be far from the thinking when booking events, they can bite if they are not understood. In this blog post we take a look at the tax rules on staff entertaining and how to make sure you can enjoy the celebrations without suffering a tax problem alongside the hangover.

Does the business get tax relief on the cost of staff entertaining?
If the event represents staff entertaining it will be deductible from taxable profits. If the business is VAT registered it will also be able to reclaim any VAT incurred. However, if you are also inviting some customers or suppliers to the event, HMRC can sometimes take the view that the staff are there to entertain these guests and therefore the cost of the event is not tax deductible for the business and VAT cannot be reclaimed.
Is there a list to the cost of staff entertaining?
For the business, no, but for the employees there very much is. There is an annual exemption of £150 per head (important to note that is £150 inclusive of any VAT). This is an exemption and not an allowance, so if the cost were to be £151 then the whole amount would be a taxable benefit on the employee and not just the £1 it exceeds the exemption by.
It’s also important to recognise it is an annual exemption. So if you were to have a summer barbeque costing £80 a head, and a Christmas party costing £100 a head, you could not claim both under the exemption. In this example it would be better to claim the Christmas do and declare the barbeque as a benefit.
Can our staff bring guests and are they included in the exemption amount?
The exemption is per head and not per employee, and so the answer to this is yes, if you are willing to pick up the additional cost your employees can bring guests. The thing to bear in mind here is that the cost is likely to be fixed based on the expected number of attendees, so if you have many drop outs the average cost per person will increase and could go over the exemption.
Are there any other rules to be aware of?
HMRC make some stipulations in order for the events to qualify. These are:
- The exemption only applies to annual events like summer barbecues or Christmas parties. it will not apply to ad hoc staff meals throughout the year.
- The events must be open to all employees, or at least all employees in a particular area. So for example if you had an office in Medway and an office in Doncaster, you could hold a separate Christmas party in each area but all staff from that area must be invited.
- We’ve said how the cost of the event includes VAT, but if the business is picking up the transport costs or hotel costs it is important to also include those.
What if the £150 annual exemption is exceeded?
This will mean the benefit will need to be reported to HMRC so that the relevant tax is paid. The business could choose to opt into a PAYE settlement agreement which will mean that it picks up the relevant tax bill rather than the individual employees, but this can run into significant sums very quickly. With careful planning you can make sure you remain within the rules and maximising tax efficiency, leaving everyone able to enjoy the celebrations.
About Veritons
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