Now that December has arrived, there is no hiding from the fact that Christmas is less than 4 weeks away. As the build-up intensifies, days seem to get shorter as schedules become packed with shopping trips, social gatherings and last minute jobs at home. However, as a contractor or freelancer, there are many expenses and loose ends to tie up. The following Q&A is designed to try and make your December easier – enabling you to spend more time enjoying the Christmas festivities, and less time worrying about expenses.
Q. Can my limited company claim tax exemption for Christmas or the annual party?
A. Yes. The cost of entertaining your employees, as long as it’s not incidental to the entertainment of others, is deductible for tax purposes. The key to being able to claim on your Christmas party is inclusion. As long as all of your employees are invited to attend, the whole event will not be taxable, even if you are just a one man band company. Please make sure you have a receipt for the expenses you are claiming.
Q. How much can I claim and are there any tax exemptions for my spouse?
A. You have £150 (including VAT) to spend per head. This doesn’t have to be restricted to employees and can include partners or spouses. To get the total figure per head you need to add up all the party costs, including transport and accommodation, then divide it by the number of attendees.
Q. I have one employee working for me. This year I want to give them a shopping voucher worth £150, but will not be inviting them to the Christmas party. What is the tax treatment?
A. Firstly, your Christmas party will not be exempt from tax because it is not open to all employees. Secondly, the shopping voucher will be taxable on the full value as it is a cash substitute.
Q. I do not want to go for a Christmas dinner by myself – can I still claim £150 in cash?
A. No. This £150 is an exemption, not an allowance. You will have to actually spend the money in order to make a claim on tax. If it is not used, the exemption will be lost.
Q. I got a little bit carried away and overspent by £10. Can I still claim the tax exemption on the £150 and just pay tax on the additional amount?
A. No. The overall cost of all events must not exceed £150.00 per head. If it does, the entire cost will be treated as a benefit-in-kind (BIK) and subject to additional tax and NI.
Q. Can I claim Christmas expenses if I also entertain clients and associates?
A. No. Client entertaining is not allowed for corporation tax or VAT purposes. If you decide to invite clients or associates, it is important to apportion the costs for tax purposes.
Q. If I am using an Umbrella service, can I claim Christmas Expenses?
A. No. Working for an Umbrella services makes you an employee of theirs. Therefore, you are not eligible to claim Christmas expenses for personal tax exemptions.
Q. Will having Christmas expenses ‘strengthen’ my IR35 status?
A. Not really. Even if you argue that this is an ‘in business’ factor, the effect will be minimal. You should consider your IR35 status based on Control, Substitution and Mutual Obligation.
Q. The company I am running is inside of IR35 and I pay myself a deemed salary. Can I benefit from claiming Christmas party expenses?
A. Christmas party expense is not an employment expense that can be used to reduce your deemed salary. Therefore, claiming expenses such as a Christmas party will not benefit you in terms of PAYE and NIC deduction. However, you can benefit if your company is still in profit after paying your deemed salary and any other business expenses. Please check with your accountant first as some companies under IR35 might not have sufficient profit to offset these expenses.
We hope this Q&A has covered most of the Christmas expenses concerns for contractors and freelancers. If you have any further questions, please give our experts a call on 020 7078 0211 or contact us here. We will be delighted to help.