With just over 2 weeks left until Christmas, it’s safe to say the winter celebrations are in full swing. With that, we wanted to recap on the expenses and tax relief you may be able to claim through your charitable donations and work festivities. Getting a little back for yourself, while treating and gifting others isn’t a bad thing, particularly during this merry month!
Your annual Christmas party
Your limited company can claim its festive or annual party as deductible expenses for corporation tax purposes. However, there are a few conditions that must be met to ensure the event is exempt from tax.
All staff must be invited
The cost of entertaining your employees, so long as it’s not incidental to the entertainment of others, is deductible for tax purposes. To be able to claim on your annual party, you must ensure total company inclusion. All of your employees and directors must be invited to attend for the event to be tax-free. For example, if you had a ‘directors only’ party, this would not be exempt from tax because it is not open to all employees. If you are a one-man band company, you can still enjoy a festive activity as a deductible expense.
Entertaining clients and associate
Client entertaining generally is not allowed for corporation tax or VAT purposes. You cannot claim annual event expenses if you only entertain clients and associates. If you do choose to invite clients or associates to an event for employees, it is important to apportion the costs for tax purposes.
£150 spend per person
You have £150 (including VAT) to spend per head and can include plus-ones for employees. VAT on the cost is recoverable but please note that guests need to be charged a nominal fee for the full VAT to be recoverable. The fee is subject to output VAT and this needs to be included in the company’s VAT return. 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. What’s more, please make sure you have a receipt for the expenses you are claiming.
But this is an exemption not allowance
Remember that the £150 spend is an exemption not an allowance. What this means is that you must spend the money in order to make a claim on tax. It cannot be requested as cash or a cash substitute. So if you’re a one-man company, but do not want to go for a Christmas dinner by yourself, you cannot make a claim for £150 in cash or cash substitute such as shopping vouchers. You must also ensure you keep all receipts that you want to claim expenses for.
The overall cost of all events must not exceed £150.00 per head. Even if you go over by just £5, you can no longer claim the tax exemption. If you do overspend, 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 chocolate 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.
- For Directors and other office holders of close companies (contractor’s PSCs are close companies), these £50 tax-free trivial benefits provided by the company must not exceed a total of £300 altogether.
Using an umbrella solution?
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 outside-IR35 status, claiming it as an in-business factor. But this is unfortunately not true.
For companies inside of IR35, the annual party expense is not an employment expense that can be used to reduce deemed salary for contractors in the private sector or net pay for those in the public sector.
If you are inside-IR35 and pay yourself a deemed salary or receiving net pay as a public sector contractor, claiming such expenses will not benefit you in terms of PAYE and NIC deduction. However, you can benefit if your company is still got sufficient retained profit after paying your deemed salary and any other business expenses. Please check with your accountant first as some companies operating inside-IR35 or caught by the off payroll rule might not have sufficient profit to offset these expenses.
Giving back to those in need
December is chock-full of parties, dinners and drinks but it’s also a good time to reflect and give back. The festive season is all about spreading the cheer, so making charitable donations is an excellent way to do this. Plus, with the tips below you could potentially get some tax relief or even increase the amount you donate without having to put in more yourself.
Donating from your company
Charitable donations to registered UK and EU charities are deductible for corporation tax purposes. You can claim tax relief (19%) by deducting the value of your donations from total business profits before your company pay tax.
Donations are not limited to currency and sponsorship payment, it can also be in the form of an employee on secondment, i.e. if your employees volunteer to work for charity during working hours, you can continue to pay their salary through PAYE and deduct the cost of your companies profit as if they were working for your business.
Making personal charity donations
Provided you are a UK taxpayer and your contribution is not more than 4 times what you have paid in tax in that specific tax year; making a personal donation through Gift Aid is one of the most tax efficient ways to give back. Donating through Gift Aid means charities and community amateur sports clubs (CASCs) can claim an extra 25p for every £1 you give.
If you pay tax at the higher or additional rate, you can claim the difference between the rate you pay and the basic rate of your donation. For example, if you are a higher tax-rate payer and donated £100 to a registered charity, the charity will receive an additional £25 from the government, which increases your donation to £125. You can then personally claim back £25.00 (£125 x 20%), as the difference between your higher tax-rate (40%) and the basic rate (20%) is 20%.
However, please note that Gift Aid does not apply for all donations. Monetary contributions given to a charity in exchange for goods or services such as charity cards or vouchers are not eligible for Gift Aid. Additionally, Gift Aid is not available on donations from limited companies.
Finally, whether you give a company or personal donation, you need to keep records of every contribution if you want to claim tax relief.
Do you have more questions on how to claim expenses for festive and annual events or on receiving tax relief for your charitable donations? Don’t hesitate to give us a call on 020 7078 0211 or get in touch with us via our contact us form. We’re happy to help with any queries you have.
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