To reward staff for their hard work, you may wish to hold a summer or Christmas party. The good news is that HMRC allows a bit of tax relief for these events.
As ever with HMRC, there are some rules to follow:
- During the tax year you are entitled to £150 (including VAT) per employee - this can be broken down into multiple events across the year providing they fall on annual dates, e.g. Halloween, summer party, Christmas, Easter party. HMRC stipulate that an event cannot be a one-off.
If you have two directors and an employee you would be entitled to £450 per year and could break this down into a summer party budget of £200 and a Christmas party of £250, or any subsequent division you like.
- The £150 is the cost per head for the whole event, so it includes additional costs such as travel to the event, lodging, food, and anything that is part & parcel of the event.
- You can claim an additional £150 for a 'plus one' for each employee providing they are a family member or partner.
- The event must be open to all employees and must be comprised mainly of employees - if it is just you and your partner, this is recorded as predominantly employees. If theres a mixed group at the event, the cost for employees and their guests is classed as staff entertainment, but the cost for the other attendees should be recorded as entertainment.
- You cant claim for anyone who isnt an employee or the guest of an employee. This means that shareholders or a company secretary not employed by the company do not count. Subcontractors are also not eligible.
- There is no maximum number of employees
The £150 limit is not an allowance. Therefore if the cost per head of a party exceeds £150 per head, the whole amount is a taxable benefit on the employee. Where there is more than one party and the limit is exceeded, the £150 exemption should be allocated to the party with the highest cost per head. Employers will generally enter into a PAYE Settlement Agreement and suffer the tax and National Insurance on behalf of their employees where the benefit is not tax free. As a summary, use the the diagram below to discover what those conditions must be met in order to claim for entertainment.
- If its just you as a director and your spouse, you can have an event at a cost of £300 tax free.
- If you have two directors and seven employees then you have a budget of £1350, plus £150 for a guest per person