When can you reclaim VAT on your Christmas party?
Your office Christmas party is one of the highlights of the year, but it can cause a headache that has nothing to do with how much you drink, and everything to do with tax. VAT reclaim for your Christmas party and other entertainment can get extremely complicated. Completing the VAT return correctly means keeping track of many different factors, as well as the total you’re requesting for a VAT refund.
Claiming a VAT Refund for Business Entertainment
In the UK, there’s a block on local VAT reclaim for business entertainment expenses. That means, for example, that you cannot claim a VAT refund on entertaining a highly valuable potential client in your private box at Wimbledon, even though these are business expenses.
The block on VAT refunds for business entertainment extends to any type of entertainment, like tickets to sporting events or concerts, food (strawberries and cream during half time), transportation (taxi ride to the tennis courts), or hospitality (overnight hotel accommodation nearby), for anyone who is not an employee.
Claiming a VAT Refund for Employee Entertainment
The good news is that employee entertainment is exempt from this local VAT refund block. HMRC realises that meals, parties, and trips are a vital part of keeping your employees motivated, making them integral business expenses. That means that your office Christmas party for employees is VAT-refundable, including food, drink, entertainment, and taxis to get everyone safely home late at night.
However, it’s not always straightforward. There are a few requirements for your employee entertainment to qualify for a VAT refund:
1. The event is for employees only
That means that it doesn’t include your employees’ partners, or company shareholders, because they are not employees. If anyone attends who is not an employee, you’ll have to calculate which percentage of the total cost was spent on your employees, and how much for non-employees.
Then you’ll only include the amount of VAT spent on employees on your VAT return. You’ll need to be very careful to indicate how much of the total VAT is for employees, and how much for non-employees.
2. The cost per head is under £150
The exemption that allows you to request a VAT refund for employee entertainment has a cap of £150 per head, per year. That means that you can include both your Christmas party and your end-of-summer office barbecue on your VAT return, as long as the combined costs per head stay under £150.
3. It’s available to all employees
Your employee entertainment has to be open to all your employees. If you have an exclusive event that’s only for the directors and/or partners, you can’t make a VAT reclaim on the costs of the event. But you can submit a VAT return for an office-wide party that includes both employees and directors/partners.
4. The food isn’t for sustenance
If you provide sandwiches and drinks for everyone so they can keep their focus during a long meeting, that doesn’t count as employee entertainment. It’s considered sustenance, so you can’t include it on your VAT return.
Similarly, you also can’t reclaim VAT on the salad that your employee grabs on the way from your Liverpool Street office to a meeting nearby. This type of food costs is only eligible for a VAT refund if the employee is more than 50 miles away. So meals that your employees pay for while in Paris for a conference are eligible for VAT reclaim, but meals they pay for while in Canary Wharf at a conference are not eligible.
VAT Reclaim for Employee Entertainment Overseas
Claiming a VAT refund on your Christmas entertainment only gets more challenging when you’re operating across different VAT systems in various EU member states. The rules regarding VAT reclaim for Christmas parties changes in just about every country. For example:
- In France, you can submit a VAT reclaim for entertainment for everybody, not just employees. That means that your Lille office’s Christmas bash can include customers, your employees’ partners, directors, and employees, and you can request a VAT refund on the total cost.
- In Germany, you can also reclaim all the VAT that you pay for your company’s Christmas entertainment, for both employees and non-employees, as long as you don’t give gifts to non-employees that are worth more than €35 per year.
- In Italy and Spain, you can’t get a VAT refund on your business entertainment costs.
It’s easy to make mistakes on your VAT reclaim for business and employee entertainment, but you can prevent them when you use the right tools. For all the details about filing successful VAT returns in the EU and other countries around the world, download our eBook.