If only Ebeneezer Scrooge had known a bit more about tax exemptions. These days, the cold-hearted miser who only begrudgingly closes his office on Christmas Day could have thrown his employees a proper knees-up at reduced cost thanks to an HMRC corporate tax relief exemption for festive entertaining costs. Not so much “Bah! Humbug!” as “Rockin’ around the Christmas tree!!”
What is the exemption?
The government offers a tax exemption for employers organising social functions and parties. The exemption runs on an annual basis, so although Christmas parties are often the biggest social events for companies, the exemption can be used for other festivities such as summer parties.
Although the relief is often described as an allowance, it is in fact a tax relief limit of £150 per employee. This allowance also applies to the smallest Limited Companies, so even if you’re a one-person band, you can still let your hair down and join in with the festivities. You worked hard in 2018, so you deserve to celebrate!
Qualifying for the exemption
There are certain rules that apply to the exemption. Let’s have a look at the requirements:
- An annual event
The event must be something that happens once a year on a recurring basis. This means Christmas or summer parties are included in the definition, but a one-off such as an anniversary celebration is not.
- In one location, open to all
The event must be open to all employees. If there are multiple locations within your organisation, an event at a single, central location will still be still exempt so long as it is open to everyone. Separate parties for different teams or departments are also permissible.
- Costing no more than £150 per head
The combined cost of all events occurring during one year must cost no more than £150 per person. Where the cost goes over £150 then the functions that can best be designated to use the exemption will be exempt, while the other events will be taxable. The £150 limit includes VAT, transport costs and accommodation costs. The total expenditure is divided by the number of guests to calculate the cost per person.
- Celebrating with non-employees
The event is required to be open to all directors and staff, but the exemption also applies to guests such as partners, family and children of directors and employees. For smaller companies, this means you can host a Christmas party where employees are in the minority and still be within the rules.If you exceed the £150 per person expenditure limit, the exemption will no longer apply and the full amount spent on the party will be taxed. Accordingly, it is wise to be careful about expenditure and check with an accountant to make sure you stay within the rules.
Cheers to the taxman
There are not many occasions when we feel warmth towards HMRC, but a Christmas party funded through tax exemptions is possibly one of those times. As a Limited Company Director, whatever you decide to do to celebrate the season – a full-blown party, a few drinks or a slap-up feast somewhere special – don’t forget to raise a glass to the taxman!
If you’re an Intouch client and you need help calculating your annual events expenses, or with any other tax matter, just contact your Personal Accountant.
If you’re not already with us and would like to find out more about how Intouch can help you contract through your Limited Company, just contact us on 01202 901 385.
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.