But there is an exception, the Christmas Party: HMRC allows businesses to dine employees, their partners and clients within a limit of £150 per year and per employee. Beware however that it is considered a reward for good work or a way of maintaining and improving staff morale and if you exceed the £150 limit the entire amount is disallowed.
There are some conditions however:
- If non-employees attend the party, i.e. partners or spouses, expenditure is allowable for tax provided the total expenditure for the party, including the non-employee guests, amounts to £150 or less per employee attending.
- If the entertainment is not available to all employees, e.g. limited only to the directors, then the expense is disallowed.
- While it's customary to have just one party per year, it's OK to split the party as long as the total for all parties does not exceed the £150 limit.
- And where VAT is concerned, the expenditure on non-employees is viewed as entertainment which means the VAT on that proportion of the expenditure cannot be claimed back, so you will need to show the split between employees and their non-employee guests.
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