‘Tis the season and the good news is even contractors and small owner managed businesses can celebrate, tax-free!
Even if you’re the only employee within your business, as a director of your company, you are exempt from paying tax on an annual party or function up to the value of £150 per person (including VAT) and you can claim a tax deduction through your company for the cost (normally worth 20%) , as long as the £15o limit is not breached. As the thought of a Christmas dinner out for one doesn’t overly entice, the £150 per attendee is not restricted just to employees, you can also invite partners, spouses and director’s guests, as they all have their own £150 exemption.
The exempt amount is not just for a meal out, expenses such as travel and accommodation also need to be factored into the calculation. To work out the price per head to ensure it is below the £150, all claimed expenses need to be added up and divided by the number of attendees. If you want to ensure your claim is correct, feel free to contact your accountant who will be able to check over your calculation.
For the exemption to apply, the event has to be made available to all and not be exclusive to a specific group, within a reasonable geographic area. So the directors can’t go for a Christmas party without their employees.
As this is an annual exemption, the £150 could be split into more than one event so you could have a series of lunches, or a Summer-related function as well as a Christmas party. However, if you expense even 1 pence more than the £150 per head limit, then the full amount will be deemed a benefit in kind.
The £150 limit is not a round sum allowance and an event has to actually take place – a cash claim cannot be made.
In true Christmas spirit, HMRC will also allow you to give gifts up to a value of £50 per individual per tax year and claim them as a tax deduction. However, the gift has to be business-related to, for example, a client or employee and also cannot consist of food, alcohol or tobacco, or vouchers which can be redeemed against these items.
Wishing you all a very merry and enjoyable Christmas entertaining season!