Is your summer staff party tax deductible?

August 8th 2022

You are planning on holding a summer party for your employees but what is the tax and NI position of such an event and what do HMRC’s rules say about it? Lauren Herbert advises.

Usually, business entertainment is not a tax-deductible expense. However, the cost of entertaining your employees (including directors), such as having a staff party, is an exception to this rule. Whether your business is run by a company or is unincorporated, it is entitled to a tax deduction for the cost of such an event.

HMRC allows unincorporated businesses a tax deduction for entertainment costs relating to the owners of a business, where they are part of a larger cost relating to staff entertainment. For example, if the partners of a firm attend an entertainment event put on for their employees.
The other main factors affecting the tax position of staff entertainment are the benefit in kind rules. Normally, if you provide employees with a perk, including staff parties and the like, then this is a taxable benefit. But as you may be aware, a limited exemption applies.

The main conditions of the exemption are that:
• The party or similar is an “annual event”.
• All employees are invited (but separate events can be held for different departments on different occasions).
• The average costs including transportation and other related expenses of the event (or events if there’s more than one in a tax year) per head for all employees and guests attending does not exceed £150 including VAT.

The entire cost of the business entertainment event is tax deductible from your business profits. Plus, it can qualify, subject to conditions, for the benefits in kind exemption if your intention is to repeat it annually, even if for unforeseen reasons it is not possible to do so every year.