The VAT man often gets a very bad press and most people would expect him to be totally bah humbug when it comes to having a wild time at the Christmas party, but hang on, this isn’t necessarily the case.
Providing entertainment for employees to reward them for good work or to help maintain staff morale should help your business and therefore it can be argued that you are spending the money for a business purpose.
VAT is reclaimable when it is incurred for a business purpose, so you can see how it is possible to claim the VAT back on your party, but there’s more to it.
If employee’s partners or guests are invited to the party too then the VAT man gets a bit more picky, in fact in this case you’ll only be allowed to claim back 50% of the VAT you’ve incurred.
There is a way around this issue though because if you charge the guests and partners a nominal fee to attend the party, the claimable amount goes back up to 100%.
The VAT man is distinctly sterner when it comes to entertainment for Company Directors. In fact he doesn’t think Directors need to be rewarded or motivated and so none of the VAT incurred on their parties is reclaimable if there are only Directors present. The obvious answer here is to always make sure there are some staff at the Director’s party!
One final point is that whilst there is no monetary limit on staff entertainment for VAT purposes, there is a limit of £150 per employee per year for tax purposes. Mind you, if you blow the lot on the Christmas party, £150 per person still adds up to a pretty good bash doesn’t it?