Christmas party expenses

Christmas party expenses

As we’re now approaching the festive season thoughts are turning towards that well known annual corporate event, the Christmas Party. After working hard all year most people expect to have some kind of work function, whether it’s a slap up meal in a local restaurant or a full on party into the early hours. Even HMRC shows its approval for these type of events by providing a tax exemption to companies for the allowable costs of holding them.

Some Limited Company contractors believe that they are too small to benefit from this exemption, but this is not the case. For annual events like these, regardless of the size of the company, HMRC applies the same tax exemption rules. This means that even one-person  Limited Company contractors can be eligible to claim back tax on the cost of their Christmas functions through their own company. It is definitely worth claiming this too as it can effectively amount to paying only 80% of the total allowable expenses.

How do I know if my event is eligible for the exemption?

The exemption only applies to annually recurring events, but it doesn’t matter when the event occurs. It can be a summer party or a Christmas dinner, both could potentially be eligible. The allowance doesn’t apply to one-off non-business related staff events (like a staff day out) or to business entertaining – even if this occurs over the Christmas period! You can still enter expenses like this in your accounting books of course, but as these are not allowable expenses they will not reduce the company’s tax liability.

To be eligible the event must be:

  • available to employees generally  or
  • available to employees generally at one location, where the employer has more than one location.

In practice this means that the function cannot be for directors only, it must also include other staff or director’s guests. The good news is that HMRC’s rules defining director’s guests include your spouse or civil partner and the children of director’s or employees.

In terms of how much you can spend the rules are:

  • The maximum allowable spend per head is £150.
  • If employees are allowed to invite a partner or guest the allowable spend increases by a further £150 for each additional individual.

What happens if I hold more than one annual staff event?

If you annually hold two or more events throughout the year it can still be possible to take advantage of the exemption if the total combined cost of these events does not exceed £150 per head. HMRC will of course require records to be kept of the cost per head for each of the functions you have held during the relevant tax year. If your records show that the total combined costs are more than £150 per head then the costs of the function(s) which best use the £150 limit will be exempt while the costs of any additional functions will be treated entirely as a chargeable benefit.

If the expenses of a single function exceed the £150 per head limit the exemption will not apply and the total costs incurred will be taxable.

What should I include in the cost per head calculation?

To calculate your christmas party expenses you should include VAT, the cost of any transport used and also the costs of any overnight accommodation provided in order for employees to attend. These costs should then be divided by the total number of people who attended – including non-employee guests – to arrive at the cost per head. It’s vital to get these calculations right as HMRC apply the maximum amount strictly; even a penny over would mean that the exemption cannot be applied. If you’re in any doubt, speak to your Intouch accountant to help you calculate these figures.

Getting the most out of your business income is vital to ensuring you fully realise the financial benefits of all your hard work. At Intouch we have experienced contractor accountants and tax consultants who will keep you fully up to date with all applicable tax allowances and exemptions. This way you can be sure that you’re operating within HMRC rules while making the most of both your business and personal income.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Allowable annual events

Allowable annual events – why they don’t have to be just once a year

Many companies provide social events for their employees to boost morale, or as a corporate ‘thank you’ to their staff for the work they’ve done throughout the year. For tax purposes it’s possible for some or all of the cost of these events to be deductable as an allowable business expense. Naturally, HMRC has specific rules on what kind of events are allowable and how much can be paid. However, with careful planning there’s potential to hold more than one corporate annual event a year and still remain within tax deductable limits. This means that as well as providing the usual Christmas Party you may also be able to hold an annual Summer Event for your staff.

The tax rules for annual allowable events and costs

The applicable rules come under Section 264 of the Income Tax (Earnings and Pensions) Act 2003 which exempts the charge of tax for corporate annual parties under certain conditions.

What is an allowable event?

Allowable events are described as:

  • Available to all employees generally (ie: not just a small group of staff, such as directors)
  • Available to employees generally at one location (if staff are located in different places, or have different distinct sections, a separate party must be provided for each group)

Corporate events which do not meet these criteria are outside the scope of the exemption.

What are allowable costs?

Allowable costs for events are calculated on the basis of the costs of the event not exceeding £150 per head. If just one function per year is held then this is a straightforward calculation. Under HMRC rules the cost includes VAT, the cost of any transport provided and the cost of overnight accommodation associated with the event. The total cost of the function must be divided by the total number of attendees – including guests who are not employees – to work out the cost per head.

How are costs worked out if there are two or more annual events?

Where multiple annual functions are held the cost per head of each individual function should be calculated individually. If the total cost per head for two or more functions does not exceed £150 then no tax will be chargeable. If the total goes above this amount then the costs for the event which makes best use of the £150 limit will be allowed the exemption. The costs for the additional events will be deemed outside the exemption and therefore taxable.

As can be seen, with careful planning it could easily be possible for you and your employees to enjoy a corporate summer barbeque or fun day event without incurring any extra tax. Speak with your Intouch accountant if you would like further advice on this.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.