Claiming Christmas expenses through your Limited Company
Can I claim Christmas party expenses through my Limited Company?
The interest-free sofa adverts have started and the supermarkets are full of advent calendars, yes you’ve guessed it, it’s now officially Christmas. If you’re currently contracting within a corporate environment the annual Christmas party is probably a hot topic amongst permanent employees.
But there’s no need to feel left out, as HMRC give even the smallest of Limited Companies the ability to take advantage of a tax exemption for any allowable costs of their Christmas event. So you can still have a good old merry knees-up for your Limited Company’s most valued member of the team.
In this blog we take a look at the rules surrounding Christmas party expenses and what you can claim for. We also look at why it doesn’t have to be lonely this Christmas, as the rules for claiming can extend to others if you’re a single-person Limited Company contractor.
How much can I claim for?
If you take advantage of the tax exemption for annual events it means that you’ll only have to pay for 80% of the costs. HMRC usually spend most of the year telling you how to stay compliant and reinforcing the the taxes you must pay, so why not make the most of their generosity at this time of year?
Which HMRC rules apply to Christmas party expenses?
For your event to qualify for a tax exemption, the event must meet the following criteria:
The event must run annually – If you’re going to party once then you’ll have to do it every year (sorry about that….!) The event doesn’t have to be restricted to Christmas though, it could be a summer party or Easter event. The point here is that whichever event you choose to celebrate it has to be annually recurring. Do bear in mind though that if you decide to have an event for just one member of staff, you must still account for the expenses and that they will not be treated as tax allowable.
The event should be available to all employees in one location – That includes all directors, staff and guests. The guests of directors can include spouses or civil partners. Children of the directors or employees are also included within this. This inclusion therefore means that if you wanted to hold a Christmas party for you and your family, there’s nothing saying that you can’t. Part time employees are also included in this, so you could have a party for them, their partners and children.
There’s a limit of £150 per head – If you were planning on treating yourself or your employees to a Christmas party in the North Pole, it’s worth bearing in mind that there’s a limit of £150 per head. This is the absolute maximum and HMRC will make no exceptions. This is not an allowance and therefore it is the receipted amount that is an allowable expense.
The £150 includes VAT, transport costs and the total cost for any accommodation. The total amount is then added together and divided up between the number of guests attending the event.
If you’re feeling generous and thinking about footing the bill for any costs over the £150 per head, don’t! Even a penny over will mean that the exemption will be void and the total cost will be taxed. It’s not worth the extra large bill just before Christmas, so if you’re in doubt speak to your contractor accountant to be sure everything has been calculated correctly.
If you like to party throughout the year
Annual events don’t have to be limited to just one per year. You could hold one whenever you wish, as long as the total combined costs of all events do not exceed the £150 per head threshold for the tax exemption to still apply. If you do happen to go over the threshold for any particular event, HMRC will only apply the tax exemption to expenses for the events that have fallen within the allowable limit.
Giving gifts to employees
It’s also worth bearing in mind that you are entitled to claiming back any costs for ‘trivial’ gifts you purchase for your employees. Now this doesn’t mean that you can buy them all a brand new Ferrari and claim the cost back! These gifts must be in keeping with the season, so giving your employees a bottle of wine or turkey is acceptable, but giving them a case of wine or a Christmas hamper would be considered as a non – trivial gift and therefore not allowable.
It is always best to discuss any annual event expenses with your contractor accountant, to ensure that you are covered by the tax exemption before you part ways with your pennies. If you’re thinking about switching accountant, or even becoming Limited in the New Year, call our team on 01202 375 562, or email us at firstname.lastname@example.org.
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.