Allowable annual events – why they don’t have to be just once a year
Many companies provide social events for their employees to boost morale, or as a corporate ‘thank you’ to their staff for the work they’ve done throughout the year. For tax purposes it’s possible for some or all of the cost of these events to be deductable as an allowable business expense. Naturally, HMRC has specific rules on what kind of events are allowable and how much can be paid. However, with careful planning there’s potential to hold more than one corporate annual event a year and still remain within tax deductable limits. This means that as well as providing the usual Christmas Party you may also be able to hold an annual Summer Event for your staff.
The tax rules for annual allowable events and costs
The applicable rules come under Section 264 of the Income Tax (Earnings and Pensions) Act 2003 which exempts the charge of tax for corporate annual parties under certain conditions.
What is an allowable event?
Allowable events are described as:
- Available to all employees generally (ie: not just a small group of staff, such as directors)
- Available to employees generally at one location (if staff are located in different places, or have different distinct sections, a separate party must be provided for each group)
Corporate events which do not meet these criteria are outside the scope of the exemption.
What are allowable costs?
Allowable costs for events are calculated on the basis of the costs of the event not exceeding £150 per head. If just one function per year is held then this is a straightforward calculation. Under HMRC rules the cost includes VAT, the cost of any transport provided and the cost of overnight accommodation associated with the event. The total cost of the function must be divided by the total number of attendees – including guests who are not employees – to work out the cost per head.
How are costs worked out if there are two or more annual events?
Where multiple annual functions are held the cost per head of each individual function should be calculated individually. If the total cost per head for two or more functions does not exceed £150 then no tax will be chargeable. If the total goes above this amount then the costs for the event which makes best use of the £150 limit will be allowed the exemption. The costs for the additional events will be deemed outside the exemption and therefore taxable.
As can be seen, with careful planning it could easily be possible for you and your employees to enjoy a corporate summer barbeque or fun day event without incurring any extra tax. Speak with your Intouch accountant if you would like further advice on this.
This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.