As the director of your own limited company, you may be entitled to tax relief on your 2016 staff Christmas party. Check out the criteria and see if you can benefit.
Christmas is just less than a month away and we have well and truly entered Christmas Party season. As a contractor and director of your own limited company, you may be able to claim Corporation Tax relief to help ease the financial pressure of hosting an annual party for your employees. We have answered the most common questions regarding party expense claiming asked by limited company directors. We hope you find it useful.
Do I have to have my own limited company in order to benefit?
Yes. You must be the director of your own limited company in order to claim the tax benefits associated with hosting your Christmas party. If you are working through an umbrella company, you are unable to claim because you are technically employed by them.
What are the tax benefits?
Treating your staff can be done using the profits of your business and will lower your Corporation Tax obligation. Assuming you follow the rules in this blog post, your employees will have no tax compulsions.
Who can attend the Christmas party?
Your Christmas party must be open to every employee at your business. If the party is only open to a selection of your employees, you are unable to benefit from the tax relief. Of course, you are able to attend yourself, as well as your partner/spouse. You are not allowed to invite any clients of your business to the Christmas party.
How much can I claim?
You can claim tax relief on up to £150 per attendee (including VAT). Don’t forget to make sure you keep every receipt.
What is included in the £150 per person?
The £150 per person accounts for any costs associated with accommodation, entertainment, travel, food and drinks.
How do I work out the price per attendee?
Working out the price per attendee is easy. Simply add up the total price of the party including the whole amount spent on accommodation, entertainment, travel, food and drink. Then divide this amount by the number of attendees (including non-employees, e.g. your partner/spouse).
Number of attendees: 4
Accommodation: Total expenditure £180.
Travel: Total expenditure £40.
Food: Total expenditure £110.
Drinks: Total expenditure £130.
Total price per attendee: (£180 + £40 + £110 + £130) / 4 = £115
I’ve already had a staff party this year – does this cause a problem?
Potentially, yes. You can have as many staff parties as you want throughout the year. However, if you want to benefit from the tax relief, you are not allowed to accumulate an expenditure of more than £150 per person, per annum.
If you had a summer party and the cost per head was £100, you are able to claim tax relief on the summer party and a Christmas party if the combined cost per head is less than £150 (the Christmas party must have a cost per head at £50 or less).
What happens if the yearly expenditure per attendee is £175? Can I still claim tax relief on £150 of this amount?
Unfortunately, no. As soon as the average spend on staff parties per person, per annum, is higher than the £150 limit (including VAT), the amount is taxable as a benefit in kind. Income tax, employers National Insurance and employees National Insurance will also need to be included. You are also required to record the benefit on each employee’s P11D and pay Class 1A National Insurance on the total amount that the event(s) cost.
As a thank you, I want to give my employees a £20 voucher each. Can this be put towards the £150 allowance?
No. A £20 voucher is a cash substitute and therefore you cannot claim tax relief.
I work alone and don’t want to go for a meal by myself. Can I have relief on £150 cash instead?
No. You will have to spend the money in order to make the claim and it must meet the criteria of the answers above.
Many of our contractors work by themselves and do not have any employees. You can still treat yourself to a Christmas party by inviting your partner/spouse. How about going out for a fancy Christmas dinner? Remember, the rules still apply and in order to benefit from the tax exemption, you must spend no more than £150 (including VAT) on each attendee.
I have a question that has not been answered, what should I do?
If you have any questions regarding claiming tax relief on your Christmas party, please visit the HMRC website. Contact us today on 01707 871622 for more information on being a director of a limited company.