With summer approaching, you may be starting to plan your work summer party. At Gravita, we are in the process of securing our summer venue as it is so important for us to get together as a team and have an evening of catching up, laughter, food, drinks, and maybe even some dancing.
However, amidst the party planning, dealing with the organisational side can often be daunting, particularly with deposits and VAT. Fortunately, our Gravita VAT team are on hand to help businesses navigate these complexities and ensure this element of the party planning is straightforward!
To alleviate some of the burden of summer event planning, businesses need to understand the rules around re-claiming VAT. Companies can claim back VAT paid for expenses related to business entertainment, meaning that the staff party must be exclusively for staff entertainment and therefore a legitimate business reason i.e., thanking staff and rewarding them with the event.
You can recover the input tax incurred on entertaining your employees at your summer party, including Partners and Directors of the business if they are also attending the party with staff. However, if the Partners or Directors decided to host their own summer event, then the VAT incurred is not input tax and cannot be recovered. This is because HMRC doesn’t recognise this event as being for a business purpose, the event must be commercial (thanking staff for their hard work throughout the year).
The input tax will not be recoverable for any clients, former employees, and spouses/partners of your staff. If you do invite them, you will need to identify the portion of people which you can recover the input tax from. Although the focus of this article is for summer parties, this rule applies to similar events throughout the year, for example staff outings or team building exercises.
HMRC clearly does recognise the importance of rewarding staff with a summer (or Christmas etc!) party, and the beneficial impact it can have on companies.
A deposit, or advance payment, is a proportion of the agreed price of the goods or service you are buying, in the case of a work event it will be the venue cost, catering and so on and can often be a substantial amount. HMRC reported that from 1 March 2019 VAT will continue to be applicable on deposits, this is helpful for the hospitality industry due to no shows and cancellations.
When looking for venues for your work summer party, many venues require a deposit to secure the reservation. These deposits can vary in size and terms, so it is important to check with the venue the cost of the deposit and the terms alongside. Planning and communication with the venue can help avoid any misunderstandings regarding the deposit. Do remember to make room for VAT on the deposit within the budgeting process.
As with any deposit, there is a point at which the cancellation policy states that the deposit is non-refundable. This means that even if your event is cancelled for reasons out of your control, after the point where the deposit is refundable (or event partly), you will lose not just your deposit, but potentially the VAT paid on that amount. If you decide to cancel the goods or service for which you have paid the deposit for, within the deadline that the deposit is fully refundable, you should automatically receive the VAT back, along with the payment.
Work parties are a great way for businesses to foster a positive work environment. Bringing the team together can motivate employees and be hugely beneficial to the running of your company and retention of employees. By understanding the VAT complexities companies can effectively manage the process and get the most out of the process.
If you have any questions or want to discuss the treatment of VAT for your summer parties, please speak to Sandy Cochrane or a member of the VAT team.