Can I claim Christmas party expenses through my Limited Company?

Can I claim Christmas party expenses through my Limited Company?

The Christmas season is officially here and contractors working in corporate environments can’t fail to notice that their salaried colleagues are gearing up for the company Christmas party. There’s no need for contractors to feel left out though. HMRC allows even the smallest Limited Company to enter into the spirit of things and enjoy a tax exemption for the allowable costs of their Christmas event. So if you are the only employee you can still benefit and enjoy a well-earned Christmas shindig for your most valuable member of staff: you.

Taking advantage of the tax exemption available for your annual events means you effectively only pay 80% of the costs. And if you are your only employee, read on to learn why you don’t have to party alone…

It’s rare for HMRC to encourage you to have fun, so why not have a Christmas party of your own this year and make the most of it!

HMRC rules for Christmas party expenses

To qualify for a tax exemption the event must be:

Annually recurring

The timing of the event doesn’t matter. It doesn’t have to be a Christmas party; it could be a summer party instead. What matters is that it is an annually reoccurring event.  If you hold a one-off staff event you should still account for the expenses, but they won’t be treated as tax allowable.

Available to employees generally at one location

If your company has several locations the event must be available to employees generally at one location. The event must be available to both directors and staff or director’s guests (not just directors alone). Director’s guests can include a spouse or civil partner. It can also include director’s and employee’s children. This means you could hold a Christmas event for you and your immediate family if you wanted to. You could also hold an event for any staff you have (even a part-time employee), their partners and children.

A maximum of £150 per head

For each partner or guest who attends the event an additional maximum £150 per head is allowable. This is an absolute maximum amount which HMRC strictly applies.

The calculation of event costs includes VAT. It also includes transport costs and the total cost of any overnight accommodation. These combined costs are then divided by the total number of directors, staff and guests attending to arrive at the cost per head.

If the expenses of an event rise above the £150 per head maximum the exemption does not apply and the entire cost will be taxed. HMRC are very strict about this so to avoid any nasty surprises, speak with your contractor accountant to be sure that your calculations are correct.

If you have more than one annual event

Many Limited Companies hold more than one annual event. As a Limited Company contractor you’re free to do the same. You could choose to hold both a summer event and a Christmas event, for example. As long as the total combined costs of each individual event you hold do not exceed the maximum £150 per head the tax exemption will still apply. If any individual event costs exceed this, HMRC will only apply the exemption to expenses for the events which fall within the allowable limit.

If you have further questions about annual event expenses, or any other type of Limited Company expense, speak to us for more information.

 

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.

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.