VAT and the Staff Christmas Party

Christmas is a time of goodwill and cheer but let’s have a quick look at the VAT implications for business. The good news is that VAT on costs incurred on the Christmas office party are fully recoverable when only staff attend.

The party is deemed wholly for the purposes of the business. If partners of staff or guests attend the party, VAT recovery is restricted; if 45 of the 50 attendees are employees, 90% of VAT can be recovered for example. In the unlikely event that guests are charged a fee to attend, even if nominal, full VAT recovery is restored.

The Christmas spirit does not extend to the invitation of business clients or suppliers as staff could be considered to be hosts and VAT recovery would be even further restricted. If the business provides Christmas gifts to staff which cost less than £50 per person (excluding VAT) the VAT on purchase can be reclaimed in full.

If a single gift to a specific employee exceeds £ 50 or is part of a series of gifts to the same person over 12 months that exceeds £ 50 in total, VAT is recoverable in full, but an equal amount of output tax is due, as a deemed supply. If you choose to brighten up your office with a Christmas tree and decorations, VAT is fully recoverable as a business expense.

If your Christmas holiday is a quiet affair you can join the thousands who file their VAT or tax returns online!