As we are now weeks away from Christmas, and the holiday season is in full swing, we cover the most common queries about festive and annual event deductible expenses.
Annual Christmas party as deductible expenses
Your limited company can claim its festive or annual party as deductible expenses for corporation tax purposes. 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 annual 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. You cannot claim annual event expenses if you also entertain clients and associates. Client entertaining is not allowed for corporation tax or VAT purposes. If for example, you have a ‘directories only’ party, this will not be exempt from tax because it is not open to all employees. Equally, if you decide to invite clients or associates, it is important to apportion the costs for tax purposes.
Rate of claim and spouse tax exemption
You have £150 (including VAT) to spend per head. This doesn’t have to be limited to employees but can include partners or spouses, as well. 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. You must make sure you have a receipt for the expenses you are claiming.
An exemption, not an allowance
The £150 spend 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. So if you’re a one-man company, but do not want to go for a festive dinner by yourself, you cannot make a claim for £150 in cash or cash substitute such as shopping vouchers.
IIf you get a little bit carried away and overspend by even just £10, you can no longer claim the tax exemption on the £150. 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.
Gifting employees (and directors)
Small gifts such as wine and turkey, given to employees (and directors) can be exempt from tax as trivial benefits providing the following conditions are met:
- The cost of providing the benefit does not exceed £50 (including VAT).
- The benefit is not cash or a cash voucher.
- The employee is not entitled to the benefit as part of any contractual obligation.
- The benefit is not provided in recognition of particular services performed by the employee as part of their employment duties.
However, if the cost of providing the benefit exceeds £50, the full amount is taxable, not just the excess over £50.
Gifts are not just for Christmas
For Directors and other office holders of close companies (contractor’s PSCs are close companies), the total cost of separate trivial benefits provided by the company, that are exempt from tax, is limited to a maximum of £300 in any tax year.
If you are using an umbrella service you cannot claim annual party expenses. Working for an Umbrella service makes you an employee of theirs. Therefore, you are not eligible to claim such expenses for personal tax exemptions.
Some believe that having Festive and Annual Event expenses can ‘strengthen’ their IR35 status, but this is not the case. 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.
Companies inside of IR35
The annual party expense is not an employment expense that can be used to reduce your deemed salary. If the company you are running is inside of IR35 and you pay yourself a deemed salary, claiming such expenses 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 article has covered most of your questions and concerns on claiming expenses for Festive and Annual Events for contractors. If you have any further questions, please give our experts a call on 020 7078 0211 or get in touch with us here. We will be delighted to help.