Christmas party expenses: Tiny Tim can have his turkey, after all

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.

Are Christmas party expenses claimable through your Limited Company?

Christmas party expenses

The festive season is well and truly upon us and with less than two weeks until the big day, this weekend is traditionally the most popular weekend for the office Christmas party. So if you’re currently contracting in the midst of the office excitement on site, it’s only natural to feel a little left out…

 

Even though HMRC is the Grinch throughout most of the year, they do allow even the smallest Limited Company to enjoy the festivities, by permitting a tax exemption for the allowable costs of a Christmas event. So if you’re a one-person band you can still give yourself a festive celebration for working so hard throughout 2016.

 

What is the tax exemption allowance?

HMRC allows a 20% tax exemption for all festive entertaining costs, so you effectively only pay 80% of the costs.

 

And should you be a one-person band you don’t have to party alone. Read on to find out how you can invite others to your party…

 

HMRC’s rules for festive partying

For your event to qualify for the tax exemption, it must be:

 

1. Annually recurring

The date when the event is held or the type of the event is irrelevant, as long as it’s annually recurring HMRC allow it to be claimable. If you decide to hold a one-off event for either just yourself or others (such as employees, family, etc), you must still account for the expenses, but they will not be treated by HMRC as tax allowable.

 

2. Available to employees in one location

If your Limited Company has employees in various locations, the event must be held in one central location, which is accessible for all. The event must be available for both directors and staff, or director’s guests (such as spouses or civil partners, and children of the directors and employees).

 

So in theory, as the director of your own Limited Company you could hold a Christmas party for your immediate family.

 

3. A maximum of £150 per person

For each person who attends the event an additional £150 per person is allowable. The £150 is an absolute maximum which HMRC strictly applies.

 

The £150 limit must include VAT, transport costs to and from the event, and the total cost of any overnight accommodation. These costs are then combined and divided between the number of attendees, to arrive at the cost per head.

 

Should the total amount per head exceed the £150 limit, the maximum exemption will not apply and the total amount will be taxed. HMRC are very strict about this allowance so if you’re unsure, speak to your Personal Accountant to ensure your calculations are correct.

 

What happens if you have more than one event per year?

Hosting company events isn’t just exclusive to the festive period, you are able to host events throughout the year. You could choose for example, to host a summer event and a Christmas event. So long as the total combined amount does not exceed £150 per head per tax year, the exemption will still apply.

 

Should any individual event cost exceed this limit, HMRC will only apply the exemption to expenses for the events that fell within the allowable limit.

 

Final thoughts – have fun!

Regardless of whether you will host a Christmas event, it’s a fantastic allowance that every Limited Company director is entitled to, so ensure you make the most of it. Why not start planning your next event today?

 

If you have any questions surrounding the annual events expenses, or any other type of Limited Company expenses, be sure to speak to Intouch’s team of expert advisers.

 

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.