Planning for your office New Year party? Many things must be in your mind on what to arrange for in the New Year party—food, drinks, and dance floor. Well, have you made up the office staff list in attendance?
That’s a good approach to start with. After all, planning for food and drink items entails a cost. But what if you can claim your office New Year party as a business expense?
Well, this is an important thing to think about. Before which, you need to brush up some facts below:
Ways to claim your New Year Party as a Business Expense
The exemption, that means to qualify for tax relief for staff entertainment only applies subject to the number of employees attending the party. To qualify for the exemption the following criteria must be met:
- New Year party must be in attendance for all employees–an exclusive director-only event (New year party only for directors in attendance) does not qualify;
- The cost must not go beyond £150 per head, per annum. All new year party expenses must be covered by the per head cost which includes venue hire, catering, entertainment, decorations along with taxis home for staff and Value Added Tax. The cost per head is the total cost divided by the number of persons in attendance (whether staff or not).
- Suppose your business has a New Year party that costs £80 per head and summer barbecue costs £90 per head. Only one of these parties will qualify because totaling both the party’s expenses will exceed the total cost per head.
What if the total cost exceeds £150 per annum?
If the total cost per head exceeds the permissible limit of £150 per annum, both employer and employee have to face serious tax implications that means an additional tax and national insurance bill of a further £140 per person. The employee is accountable for the tax unless the employer enters into a PSA (PAYE Settlement Agreements) with HMRC to meet the tax liability, which will be calculated on the grossed-up amount.
Under normal instances, directors and employees are charged on the basis of their expense share of a social event. Whilst there are some exemptions to this:
As an employer, you provide your staff with an annual party or a New Year party, then in such a case, there is no charge to tax on the employee. The expenses are allowed in your annual accounts and you can reclaim any VAT paid subject to the event open to all employees and which cost less than £150 per head.
If you organize more than one party or a function in the year then the above exemption still applies subject to the total cost per head should be less than £150. It is not essential to keep a running aggregate each year by the employee but just a cost per head per party.
However, there are different rules applicable if the annual total per head is more than £150 as this amount is not an annual allowance per employee.
- Suppose you organize a summer barbeque for all employees at a cost of £110 per head. You then organize a New Year party at £50 per head. The total cost per employee comes out to be £160. On a £150 allowance, only the £10 is disallowed. Instead, the total £50 per head cost of the New Year party is disallowed as this expense has exceeded the threshold over £150.
- Your company spends £30 per head on the summer ball in May, £60 per head on a staff barbeque in August and £70 per head on a New Year party. The exemption is allowed only on the staff barbeque and the New Year party (total cost £130 per head), but the full cost of the summer ball will be taxable.
Points to note:
- Always apportion your expenses on every function or a party you organize in a tax year. It should not exceed £150 per head in a tax year not per event.
- Amount falling per event goes beyond £150 per head in a tax year would either be disallowed or become taxable benefit for the employees in attendance.
For example—your annual summer barbecue costs you £50 per head and the New Year party came to £105 per head, the entire £50 for the summer barbecue party would be a taxable benefit for the employees in attendance.
- Always pick and choose which events best utilize the £150 exemption.
Still, if your New Year party goes beyond £150 per head—http://localhost/nexa-accountants/blog/blog/my-christmas-party-costs-me-160-per-head-what-to-do-now/
Things to Remember!
- Get the benefit of tax-free allowance of £150 per head over a tax year for your New Year party.
- If your New Year party goes beyond the threshold of £150 per head (in case £151 or more), the whole thing will be taxed, as usual, that means there will be no chances to claim the first £150.
Nexa Accountants can help you:
What do we need?
- Record the cost of your New Year party as a Staff Welfare Expense and submit it with us.
- Scan and Upload your receipts or invoices for safe storage with us.
For more information, you can refer to our Entertainment and Parties Guide.
If you have any queries, we would be more than happy to help you claim your tax-free allowance of £150 per head for your New Year party. Contact us on: 020 3004 9303.