With the warm weather inviting us outdoors, it’s an excellent time for limited companies to consider hosting a summer party for their teams. Not only does it serve as a great morale booster, but it can also be tax-efficient if planned correctly under HMRC’s guidelines.
Understanding the Tax Exemption
HMRC provides a tax exemption for annual company events, including summer parties. The key limit to remember is £150 per head, which covers the entire cost of the event per attendee. It’s crucial to note that this figure is an exemption rather than an allowance. This means if the per head cost exceeds £150, the entire amount becomes taxable, not just the excess over £150.
Who Can Attend?
To qualify for the exemption, the event must be primarily for employees and must be open to all staff. This inclusivity extends to family members, who can also join the celebration under the same exemption per head. However, care should be taken with shareholders; if they are not employees or directors, their inclusion could affect the tax status of the event.
Virtual Celebrations and Gifts
The recent shift towards remote working has introduced the concept of virtual parties. These too can qualify under the same tax rules, provided they adhere to the annual function criteria and are open to all employees. If opting for a virtual event, companies might consider sending out party hampers, which should be part of an organised event to qualify for the exemption. Standalone gifts might be better suited under the trivial benefits rule, which allows up to £50 tax-free per employee under specific conditions.
Documenting Your Expenses
When claiming the exemption, record the cost as a ‘Staff Welfare Expense’ or a similar category in your accounting software. Be sure to keep all receipts and invoices to back-up the claim, as HMRC may require proof in the event of an audit.
Maximising the Benefit
If your company holds multiple events throughout the year, you can split the £150 exemption across these events. For example, £75 could be allocated to a summer BBQ and another £75 to a Christmas party, ensuring that the combined cost does not exceed the £150 limit per head.
Organising a summer party can be a great way to reward your team for their hard work and dedication. By keeping these guidelines in mind, you can ensure the event is not only enjoyable but also tax-efficient.
PaperRocket are a multi award winning Chartered accounting practice, and Accredited FreeAgent Practitioners.
We specialise in providing friendly, non-accounting jargon, services for contractors, freelancers, sole traders, and landlords across the UK.
Our fixed fee monthly accounting packages all include a FreeAgent subscription as standard and unlimited support from your allocated accountant.
To find out how we can help you please get in touch now.
