To Host or Not To Host a Year-End Party?

“If you can laugh together, you can work together” (Robert Orben)

There’s no requirement or obligation for companies to host a year-end party for employees, clients or suppliers. This is true even if there’s a company tradition of an end-of-year bash, or where there may be expectations of a year-end party for clients or suppliers in certain industries.

Read on for the lowdown on the pros, cons and tax implications of hosting a year-end party (or parties).

The benefits of year-end functions

For many, a year-end party is a highlight. A great meal, free drinks and the opportunity to mingle socially with your colleagues. It can even be a motivator when linked to company performance over the year. Here are a few other benefits:

• By creating shared memories that are talked about throughout the year, these functions can create a sense of belonging.
• Employees get to know each other better, making connections, building trust and helping to improve communication and collaboration. In the same way, functions for clients and suppliers are a chance to make professional connections and even new friends.
• A company-sponsored celebration offers a change of scenery, routine and pace that can boost employee productivity when you get back to the office. Among clients, it can increase levels of customer satisfaction and loyalty.
• A dedicated function makes people feel valued. For employees it can boost morale, build loyalty and reduce turnover, while for clients and suppliers it can create long-lasting relationships and generate qualified referrals.
• A party is also a great opportunity to share company achievements, like sales figures, special projects completed, or client video testimonials, in the process inspiring staff, clients and suppliers with your company’s vision and offering.

The possible drawbacks of year-end functions

The first step in arranging a corporate event should be setting a budget. Consider the costs – and the potential rewards – carefully. A boring or cookie-cutter party could nullify all the benefits – even if it’s not lavish. That’s why you need to make sure you host a thoughtful event that creates a positive and lasting impression of your company.

There’s also always a risk that staff, suppliers and even clients might conduct themselves inappropriately. This can cause reputational damage and sour working relationships. In extreme circumstances your businesses could even be held legally liable for employee behaviour.

Is it tax deductible?

A company year-end party for staff can be a tax-deductible expense where it’s regarded as a non-taxable occasional meal.

Where clients or suppliers are entertained at a year-end function, expenses such as meals, venue hire and live entertainment can be claimed as a tax deduction, but only if you can prove the expenses were incurred “in pursuit of business”. This means keeping a comprehensive schedule of the entertainment expenses along with the date, the venue, the company and people entertained, and the purposes of that entertainment (for example, prospecting for a new client) to prove to SARS that the expenses were genuinely business-related.

A claim for entertainment expenses is likely to be flagged for investigation by SARS, so don’t risk it unless you have verified your tax position with us and your ability to prove that the expenses claimed are legitimate business expenses.

Remember also that input VAT cannot be claimed on entertainment expenses, including but not limited to business lunches and dinners; annual functions; and expenses incurred for entertaining clients at restaurants, bars and night clubs.

To host or not to host?

If you are considering a year-end event, we invite you to rely on our expertise. While we won’t offer to help with the décor, we can assist you to weigh up the pros and cons for your specific business. We can help you to determine a budget and take care of all the tax stuff, so you can enjoy all the benefits of a corporate function with confidence. Cheers to that!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact us for specific and detailed advice.

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