It’s that time of year… when we’re most often asked about the tax on annual parties! The start point is that entertaining staff is a taxable benefit in kind unless there is an exemption.
The annual party tax exemption only applies when the total cost of the party, divided by the total number of people attending, is less than £150 per head (including VAT, transportation, and accommodation). If the total cost is so much as £1 too much, the whole amount is taxable on the employees. The party must be open to all staff or all staff in a particular location.
The tax-free exemption can apply to multiple annual parties in any given personal tax year (to 5 April) e.g. winter and summer solstice parties. If any single party takes the accumulative cost per head above £150, then the cost of that party, and any subsequent ones, are taxable benefits, but the earlier parties are still exempt.
Single person companies can benefit from this tax exemption, including family members, as long as all of the above applies. The party must be primarily to entertain staff of the company, even if there is only one!
As long as the party is mainly for employees and their family, you can treat the whole cost as tax deductible. You can reclaim the VAT on the full cost unless the party is attended by directors only (or for a single director).