Tax tips mini-series (3 of 4)

Our mini-series continues with tip number three out of the following four:

Staff parties

Staff parties can be tax free, i.e. they’re an allowable business expense and input VAT is claimable, but they don’t give rise to a taxable benefit for your employees. They’re a great way to boost staff morale and productivity – something HMRC clearly recognises!

Staff parties are often thought of as a Christmas tax perk, but in fact the parties can be held at any time during the year. There’s no restriction on the number of parties held in a tax year, but there is a limit on the cumulative spend per head. This is £150 per head, and it comes with a health warning. When a party breaches this limit, the entire spend on that party becomes a taxable benefit.

For example, if you hold three parties in the year costing £50, £60 and £65 respectively (totaling £175 per head), the first two will not give rise to a taxable benefit. However, the third party breaches the £150 limit, and therefore the whole £65 becomes a taxable benefit. Worse, if you have one big party a year that exceeds the limit, the whole cost is a taxable benefit, not just the portion over £150.

There are a few additional rules, including:

  • The party must be primarily for entertaining staff.
  • The party must be open to all staff.
  • Input VAT recovered must be apportioned for any clients entertained.

If you throw parties for your staff this is a great little tax break, but the rules around the limit are quite harsh so budget carefully!

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