I am almost sure that the first thing that everyone thinks about when the office Christmas party is mentioned is what should be done about the input VAT incurred, but for those that don’t think like this (maybe it’s just me), I thought it would be useful to give a quick reminder on the correct treatment.
When only employees of the business attend the Christmas party then this is seen as staff entertainment and is deemed to be wholly for the purposes of the business, and input VAT incurred on the event is fully recoverable.
The complication that arises is when either the partners of staff or business contacts also attend. Only the VAT that relates to the staff can be recovered and the amount that can be recovered should be based on a fair and reasonable basis, with the most logical method being based on total guests, i.e. if there are 100 guests and only 50 of them are staff, then only 50% of the input VAT should be recovered.
If there are business contacts attending, then if any of the staff are acting as their hosts then this is deemed to be for business purposes and the input VAT relating to those staff would also be blocked (this block doesn’t occur if the guests are non-UK contacts).
One possible way to avoid this block for the spouses and partners of staff is to make a charge to them for attending the event. Output VAT would be due on this charge, but this would then allow input VAT recovery on the costs relating to their attendance. This would not however apply to business contacts.
The other area just to be mindful of in this area, is if any events are only for the partners or directors of the business with no other staff attending. In such cases, the input VAT incurred on these events is not recoverable.
Although we all know really that VAT isn’t something any business wants to be thinking about over the festive period, it is important to ensure that the correct amount of VAT is recovered to ensure that there will be no assessment raised by HMRC in the New Year.
If you'd like any more information about Christmas VAT implications, please get in touch
