With Christmas fast approaching and the festivities getting into full swing – it’s time to consider what expenses and tax relief your limited company could claim. There is no specific allowance for a ‘Christmas Party’, however, there is limited tax relief against the cost of holding an ‘annual event’, providing specific conditions are met.
Rules to follow for your annual Christmas Party
£150 per person exemption
As a limited company director, you are entitled to provide an annual event for yourself, your employees and your partner. As long as the cost per head does not exceed £150 (including VAT) you can reclaim the costs against the company.
The £150 is an exemption not an allowance, which means to claim the tax relief you must spend the money.
Please be aware that even if you exceed the £150 by a couple of pounds, the entire cost will be treated as a benefit in kind and subject to additional tax and National Insurance.
Calculating the cost per head
To arrive at the total cost per head, you should divide the total cost of each function by the total number of people (including non-employees).
What does the cost per head include?
The cost per head can include the following for your annual Christmas event:
- Food and drink
Reclaiming VAT on the party expenses
It is possible to reclaim the VAT on Christmas party expenses, as long as directors and partners are attending the same staff party as other employees.
As detailed above, the VAT element of entertaining can only be claimed when it relates to a member of staff. Your limited company can still pay for the cost of entertaining clients who are existing clients, potential clients or anyone who is not an employee, but it will not be an allowable deduction for Corporation Tax purposes.
It is still more tax-efficient paying for client entertainment via your limited company, rather than withdrawing the funds and paying for it personally. This is because when you do it this way Income Tax would then be due.
What about personal entertainment expenses?
Your limited company can pay for your personal entertainment over the festive period. This is known as a benefit in kind, but there are really no benefits associated with putting your personal entertainment through your limited company and you may as well pay the cost yourself.
Gifting Employees and Directors
Providing the following conditions are met, small gifts to employees and directors can be exempt from tax:
- The cost of the gift does not cost more than £50 (including VAT) – if it exceeds this amount, the full amount is taxable.
- The gift is not provided as a recognition of an employee performing their duties or the employee is entitled to the benefit as part of their contract.
- The gift is not a cash voucher or cash.
- For directors and other office holders of close companies (including contractor’s PSCs), the tax-free £50 gifts provided by the company must not exceed a total of £300.
Charitable Donations to those in need
Christmas is a time of giving and making charitable donations to those who need it most is a great way to spread festive cheer. We’ve compiled a short list of ways you can get some tax relief on donations or increase the amount you are donating:
Donating through Gift Aid
Please note – Gift Aid does not apply for all donations which include donations from limited companies. Gift Aid does also not apply when monetary contributions are given to a charity and are exchanged for a service or goods such as vouchers or charity cards.
Provided you are a UK taxpayer, Gift Aid can be applied if you are making a personal charity donation. Charities can claim an additional 25p for every £1 you give. Gift Aid can be applied as long as the donation you are making does not exceed four times what you have paid in tax in that year.
Rules regarding higher or additional rate taxpayers
If you are a higher or additional rate taxpayer, you can claim tax relief on the difference between the rate you pay and the basic rate on your donation. You can claim this back through a self-assessment tax return or contacting HMRC to amend your tax code.
You donate £100 to a charity of your choice – they claim Gift Aid on your donation to make it £125. You can personally claim back £25 (£125×20%) as you pay 40% tax.
Tax relief deductible from your company donations
If you are donating from your limited company, you can claim 19% tax relief by deducting the value of the charitable donation from your limited company profits before you pay tax.
Seconding employees to charity during the festive period
If any of your employees decides to volunteer for a charity over the festive period, you can deduct the costs as normal business expenses – as long as they volunteer during working hours.
Your company must continue to pay the employee’s salary via PAYE. You can then offset the costs (business expenses and wages) against your taxable profits, as if they were still working for you.
How do I claim Christmas Party expenses?
If you are a Churchill Knight & Associates Ltd client then speak to your Account Manager who will be happy to explain how to record and claim your expenses. Remember you must keep any receipts or invoices for any expense claim you want to make.