Like most employers, you should have by now reached the time of year where you start thinking about your Christmas party. Whether you’re hosting at your premises, looking at swanky hotels, or pouring through novel ideas, there are ways to keep your workforce entertained while ensuring it’s tax deductible.
Understanding the Rules Surrounding Tax Deductible Christmas Parties
First, that £150 per head doesn’t just apply to your employees. It’s applicable to whoever is in attendance, which means it’s tax deductible for your spouse, their spouses, and whoever else they bring along. Now here’s the tricky part; if you go even one penny over that £150, the whole event is subject to the usual VAT rules.
To meet these terms, bookings must be made in the business’ name. So when you call a hotel or restaurant to make a booking, book it under the name of your business and not the director or events planner. It’s also worth noting that this £150 per head expense is per-annum. So if you hold more than one event in a year, the aggregate cost must not exceed £150. In order for it to be classed as a party that’s tax deductible, it must be open to all of your employees. If your employees are at different locations – because you have a lot of branches – you’re allowed to hold parties at all of these locations.
And finally, on the staff plus spouses rule, you need to make sure the party primarily caters to staff. If the majority of people in attendance are not staff members, then you cannot claim the VAT exemption.
Avoid the Expenses Associated with Going Over that £150
As anybody who has planned an event before will know, costs can creep up on you without warning. Take entertainers, for example. If they have to stay longer than planned, they might charge an extra fee per hour. Such costs might seem marginal in the short term, but if there’s a lot of them they can soon add up and tip you over the £150 limit. We spoke to Samantha Fellows, from the corporate entertainment agency, The CEP, on this matter who said, “We always recommend businesses agree a fixed fee for Christmas party entertainment. If this is not possible then they should agree a maximum fee that will mean they do not incur any additional cost and end up going over the £150 per head. That way it is down to the entertainment agency to ensure their services come in at the fixed fee or below.”
One way to work around this is to authorize a director to cover the excess costs. When doing this, you need to have receipts to prove that the director has paid their share.
Naturally, if you are the director, you don’t want to spend your Christmas dealing with the administrative headache that is splitting bills. At the same time, you also want to avoid paying for a party out of your own pocket. If you’re going to make the most of a tax exemption, it needs to remain beneficial to you and your company. Here’s where a little forward planning comes in. As with any business activity, budgeting is the key to success.
When budgeting, always read the venue’s small print. Some may not add VAT onto their hire rates until the end, by which time you find yourself facing a much larger bill than you’re prepared to handle. As already mentioned, there are extra costs for when services run over time. If you’re using a venue and you plan to save money by bringing your own alcohol along, you should also be aware that many places charge a wine-corking fee. Some may also charge for you to ‘rent’ glasses. In many cases, this does cost less than using the bar at your designated venue. However, not being aware of the associated costs can lead you into a false sense of security, causing you to budget incorrectly.
Finally, on the costs front, will you be having an open bar? This is often the pièce de résistance at any office party, but it’s also a budget killer. You can negotiate this by limiting the open bar times, or by offering to pay for a certain number of drinks.
When the party is done and dusted, make sure someone’s around to deal with receipts. Once all the vendors are paid, you should find that you’ve pulled off the perfect tax deductible Christmas party.
www.theguardian.com/small-business-network/2013/dec/16/tax-deductions-christmas-party