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Now is the time that many businesses are planning a Christmas celebration for staff as well as possibly for partners/spouses, clients and prospective clients.
The cost of a staff party or other annual entertainment is generally allowed as a deduction for tax purposes. If you meet the various criteria outlined below, then there is no requirement to report anything to HMRC or pay tax and National Insurance. There will also be no taxable benefit charged to employees.
VAT incurred on Christmas parties for your 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.
It is important to pay attention to the nuanced tax rules to ensure that your party is tax exempt.
Addison & Co