Paying for directors and staff entertainment generally creates a taxable benefit on the individual.  However annual parties can be paid for tax free.  The criteria includes there being a cap on costs of £150 per head.  This can include food, drink, travel and accommodation. 

The total cost of the party including VAT, is divided by the total number of attendees including partners of directors and employees.  This total cost per head must be less than £150 otherwise the whole lot becomes taxable on the directors and staff.

An annual party can be a summer party, Christmas party or even end of financial year party. It can’t be a one off event or a quarterly event, as neither would be “annual”.  The event must be to entertain the staff and be open to all staff.

VAT can be reclaimed on the whole cost as long the party is only for directors, staff and their partners.  Also the business gets tax relief on the cost of the party.

There can be more than one annual party within one tax year, albeit for different events.  If there is more than one then the limit for the second or subsequent parties is £150 less the amount spent per head on earlier parties.

And new this year, directors and employees can also be given tax free gifts of up to £50.  We recommend the gifts are handed out before or after the party, to avoid the cost of the gifts adding to the cost of the party.

Do party safely.  As with all of our tax tips and web pages this information is necessarily summarised and of a general nature.  If you would like detailed specific advice please contact us.