It is well known that where an employer provides staff entertainment, for example a staff Christmas party, the expenditure is not disallowed by the tax legislation. However the legislation is not as simple as all that.
An employer is allowed a tax exemption for staff entertaining but the relief only applies to annual parties and is set at a maximum of £150 per head (note, not £150 per employee) including VAT. An employer is allowed to have more than one staff function a year providing they are open to all employees for example, a firm could have a Christmas party, a summer BBQ and an autumn event, each costing £50 per head.
If the cost goes over £150per head then all the costs are taxable as a benefit in kind (not just the amount in excess of £150). Any overnight accommodation or taxis at the end of the night have to be included in the calculation. In the event that the limit is exceeded the employer can apply for a PAYE settlement agreement.
In terms of VAT, the good news is that although there is an input tax block on business entertaining expenses, the block does not include hospitality provided for staff. In such cases, the cost is really classed as a staff welfare or motivational expense – and input tax can be claimed. However, not such good news in relation to the meals for non-staff members – the input tax is disallowed in full.
If you would like further information on this subject or any other, please feel free to contact the team on 01733 371180.