In a recent newsletter we looked at the tax implications of giving Christmas gifts to your staff and the complications that can arise. In this newsletter, we will take a look at the tax breaks available for staff Christmas parties or similar annual events.
In general, the cost of a staff party or other annual entertainment is allowed as a deduction for tax purposes. However, there are some important criteria that must be followed to ensure that there will be no taxable benefit charged to employees.
All costs including VAT must be taken into account. This includes the costs of transport to and from the event, food and drink and any accommodation provided.
Any VAT incurred on Christmas parties for staff can be recovered subject to the usual rules. If staff partners/spouses or clients are also invited to the event the input tax has to be apportioned, as the VAT applicable to non-staff is not recoverable. However, if non-staff attendees make a contribution to the event, all the VAT can be reclaimed and of course output tax should be accounted for on the amount of the contribution.
So, as the holiday season approaches, it's fun to plan a party, but worthwhile to pay attention to the tax rules to ensure that your party does not create hidden tax costs for your employees.