How VAT affects Christmas parties

During the festive period, businesses up and down the country will be celebrating with their annual Christmas party. Fortunately, one source of positive festive spirit can be found where employees of the company are involved. The general rule is that where only employees attend an event, be it a staff party or a team building exercise, the VAT is recoverable in line with the businesses’ overall VAT recovery position. The VAT rules differ from direct tax rules on such events, being arguably more generous.

However, the picture changes where directors and/or partners (of a partnership) or non-employees, such as significant others, are invited. Depending on the number of people in attendance and their status, the ability to claim VAT on these expenses changes. Generally speaking, where entertainment is provided only for business owners or partners, the VAT incurred is not recoverable, but where other staff are also involved, the position is more favourable.  Moreover, many businesses choose to invite clients, or ex-employees to parties so they can join the festivities. Where staff attend with other non-employees, additional rules apply and more detailed apportionments are required.

The specifics of any given event need to be reviewed with some care to ensure the right rules are applied.

Depending on the event, the VAT sums could be modest or sizeable and a considered approach can save VAT costs for years to come.

And remember, these VAT rules are not just for Christmas – the same rules apply throughout the year. One to bear in mind when planning your 2023 summer parties.

What next?

Please feel free to contact the Gravita VAT team for any queries so that you can relax and enjoy the festive period.

From all of us at Gravita, have a wonderful festive period – and don’t forget to pay tax responsibly.