Can a staff party be tax-deductible? 

A special event like a Christmas party is a great way to improve the morale of the company and to reward your team for their hard work.

Whilst it is a valuable tool that allows you to bring the team together. Entrepreneurs are usually left wondering what the tax situation will be incurring costs for this type of event.  Within this post, we will be talking about the costs of organising a company meeting/event from a tax point of view. We will be looking at this in detail from both an entrepreneur, accountant, and tax adviser point of view to see whether a staff party can be a tax-deductible cost for the company.

Christmas staff parties in the tax books of a limited company.

The laws of economics work in a similar way in European countries. However, the rules on tax in force in Great Britain and Poland may differ significantly so it is always best to check. One of the issues that entrepreneurs running limited companies in the UK face are the costs of a staff party.

According to the current definition of income costs, Ltd companies can include all expenses incurred to obtain income. Therefore, costs incurred that do not meet this requirement cannot be included in tax costs.

Additionally, as well as showing the incurred expenditure, business owners must prove their purposefulness and rationality. If the expenditure related to the organisation of a special event is to qualify as a tax expense, it is necessary to specify the purpose for which the cost was incurred.

Requirements for company meetings.

To be included in the costs of a company meeting, it must be regular. This means that the event should be held every year. We commonly see yearly Christmas parties held by companies, but you do not have to make it about Christmas. The event could be on New Year’s Eve or an Easter breakfast; whatever you choose, it will need to be repeated yearly.

Such a meeting should be organised exclusively for employees, i.e. entertaining staff. In the event of the participation of other persons, the expenses may not be tax-deductible. For example, if there are more guests than employees. Invited clients can also participate in the meeting, but this may impact the VAT settlement.

The event should be open to all employees and Directors are free to attend the staff meeting and are subject to dismissal. But the event cannot only be held for directors. The exception to this would be when the company does not hire employees other than directors.

How Much Can You Save?

All employee meetings can be fully included in operating expenses, but NI tax exemptions and benefits are available only up to a certain amount per year.

It is also worth mentioning that in the case of company meetings, the entrepreneur has the possibility of deducting its costs. You can save on taxes also in the case of employees.

Why is this happening?

When organising a meeting other than a “holiday”, both directors and employees are taxed on the benefits obtained. Both benefit in kind (BIK) and NI (National Insurance) contributions do not have to be paid in the case of the so-called holiday events.

According to HMRC, to avoid taxes, the cost of the event per person must not exceed £150 (including VAT) per year. To calculate the cost per person, it is enough to divide the incurred expenses (travel, accommodation, catering) by the number of people participating in the meeting. This also applies to accompanying persons.

VAT tax.

Under HMRC VAT Notice 700/65, VAT cannot be deducted if only directors and their accompanying persons participate in the event. Employees must also participate in the meeting for the VAT to be recovered

This is because such meetings are organised primarily for business purposes.

Christmas party for employees and expenses related to the purchase of alcohol.

An entrepreneur who organises a special event for his employees must be aware of the following:

Expenses incurred for the purchase of alcoholic beverages cannot be counted towards tax costs. According to tax authorities, beverages containing alcohol are unnecessary to organise a work event. In addition, such an expense does not increase its revenues or preserve its source.

Professional accounting services are designed to protect taxpayers against incorrect taxation of expenses.

For more help and advice understanding the ins and outs of tax-deductible corporate holiday parties, get in touch with the team today! They can answer any questions you may have regarding corporate events or anything else you wish to run by them regarding your business.