At SquareMeal we’re firm believers in the power of a good party. An annual staff party is an essential part of creating a positive company culture, and helping to build important relationships within your teams. In that sense, we’d argue that staff gatherings are fundamentally necessary to running a healthy business. Fortunately, HM Revenue and Customs agrees with us - hence why it offers a small, but very welcome, tax break against annual staff parties.
How much can I claim for a Christmas or Summer party?
The top line is, you can claim £150 a head in tax relief from annual staff parties, but that only applies via strict criteria. If you don’t meet these criteria, you will not be able to claim back any tax relief, so read on to make sure you don’t fall foul of HMRCs rules.
How does the £150 per person tax exemption work?
First off, you must be a limited company to apply for these tax breaks. If you tick that box, read on.
What sort of event can I claim tax relief for?
The tax relief applies to ‘annual parties’ - effectively summer or Christmas parties, not one-off events like team building events or a retirement/leaving party. The event must be primarily for entertaining staff, and all staff in the company must be invited (if you limit the event to just company directors, for example, you will not be able to claim the exemption). In fact, you cannot invite clients or customers either; even if you have a few spare spots and you invite a client, the event will now be classed as ‘client entertaining’, and you won’t be able to claim your tax relief.
If you’re a company with offices in multiple locations, only the staff from the location where you are having the party need to be invited (not all staff across all locations).
This tax exemption was extended in 2020 to cover virtual/remote events as well as traditional in-person events.
How is the £150 per head party allowance calculated?
The £150 a head allowance covers all party costs - accommodation, food and drink, and transport, plus VAT. To calculate the cost per head, HMRC specifies that you must add up the total cost of your event and divide by the number of people attending (including non-employees).
The £150 is a limit, not an allowance. If you calculate your cost per head and it comes to £150.01, the event will be taxable. The total cost per head of your event must be no more than £150 for you to claim anything back.
The tax exemption can apply for multiple events (i.e. you can claim for a summer party and a Christmas party in the same year), but the total cost of all those parties must not exceed £150 a head for the year. For that reason, you might prefer to spend your exemption on a single party, rather than splitting it across two.
Can you reclaim VAT on party expenses?
Yes, but the event must be for your staff and not for ‘business purposes’ (i.e. entertaining customers or clients). Also, your VAT claim cannot extend to guests or partners that attend, only to company staff.
How do I claim the £150 a head tax break?
You'll need to declare it as part of your tax return at the end of the financial year. For more information take a look at government advice on exemptions and how to apply.
Planning a work do for the first time? Check out our essential 13-step guide to planning an event!