Most company directors will be pleased to hear that they can legitimately claim for the costs of an annual party for employees and partners, as long as a number of conditions are met.
When and how is an annual event exempt from tax?
For a party to be exempt from NICs and tax,
- The event must be open to all directors and employees (or all employees in a specific department, or company location).
- The event must be a recurring annual event such as a Christmas party, not a one-off event to celebrate winning a new contract, for example.
- The total cost per head must not exceed £150. This figure has remained unchanged since 2003.
- Importantly, each employee or director can also invite a partner to the annual event – the £150 exemption will apply to their costs too.
- The cost can include everything from food and drink, to travel and accommodation costs (if they apply).
- If the cost does exceed £150, then no part of the costs can be offset against tax using this tax exemption.
- The entire event will become a taxable Benefit in Kind if the ceiling is breached.
- Regardless of the total cost of an event, the limited company can offset the cost against Corporation Tax.
- Ensure that all bills and receipts are made out in your company name.
- The £150 limit includes any VAT paid.
- You can hold several events each year and can claim the combined costs against tax, as long as the total cost per head for all events does not exceed £150.
- If you hold multiple events each year, and the combined costs exceed £150, then you can choose one event to be exempt.
- The £150 ceiling is an exemption, not an allowance. You can only offset the genuine costs of hosting a company event against tax.
- To calculate the cost per head, you should divide the cost of each event by the number of people who attended (including guests / non-employees).
- You can reclaim the input VAT paid on an annual event, although there are exceptions, e.g. you cannot reclaim the input VAT on invited partners’ costs (see the Ross Martin link below for more information on this point).
The exemption can be found in Section 264 of the Income Tax (Earnings and Pensions) Act 2003.
For the full details of the annual parties exemption, read EIM21690
Ross Martin Tax Consultancy has a very useful guide to the intricacies of the annual party exemption here, including notes on the treatment of input VAT in the “Overview and FAQ” section.
More on limited company expenses.