With Christmas just around the corner, here’s a reminder of the tax relief you can claim for parties and gifting.
Hosting a Christmas party
Your limited company can claim its Christmas party as deductible expenses against corporation tax as long as:
- All staff are invited
To be able to claim on your annual party, you must ensure total company inclusion. All of your employees and directors must be invited – a ‘directors only’ party would not be exempt from tax. If you are a one-person company, you can still enjoy a festive activity as a deductible expense.
- You spend no more than £150 per person
You can spend no more than £150 (including VAT) per person (you can include plus-ones for employees). The cost per head should be calculated by adding up all the costs of the party, including transport and accommodation, then dividing it by the number of attendees. 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.
- You claim VAT correctly
VAT on the cost is recoverable but only if you charge each guest a nominal fee. The fee is subject to output VAT and needs to be included in the company’s VAT return.
Remember, this is an ‘exemption’ not ‘allowance’
You must spend the money in order to make a claim on tax. The £150 per head allowance cannot be requested as cash or a cash substitute.
You cannot claim tax relief when entertaining clients and associates
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.
Gifting – employees and directors
Small gifts such as wine and chocolate given to employees and directors can be exempt from tax as trivial benefits as long as the value does not exceed £50 (including VAT). When buying gifts for directors and other office-holders, the total amount provided by the company cannot exceed £300 altogether.
- The benefit must not be a cash or a cash voucher.
- The employee is not entitled to the benefit as part of any contractual obligation and the benefit is not provided in recognition of particular services performed as part of their employment duties.
If the cost of providing the benefit exceeds £50, the full amount is taxable.
It is not true that an annual party expense will strengthen your ‘outside IR35’ status. If the company you are running is inside IR35, the annual party expense is not an employment expense that can be used to reduce either 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. You will need to check with your K&B accountant first as some companies operating inside IR35 or caught by the off-payroll rule might not have sufficient profit to offset these expenses.
For further information and advice around the tax rules of Christmas parties and gifting, please get in touch.