As a UK business owner, there is a tax exemption called the Annual Event. This covers your office Christmas party costs and other events during your company’s financial year. Suppose the party is for you and your employees and specific criteria are met (see VAT Notice 700 65). In that case, you can claim the HMRC Christmas Party allowance as a genuine business expense.
If you are running your own UK company, you may feel that the tax system does you very few favours. Thankfully, HM Revenue & Customs (HMRC) are not a complete scrooge. Therefore, it is good to know that during the tax year, they do give business owners specific financial incentives. This annual allowance is now known as the `Annual Event’. If you are a UK business owner, claiming the annual event allowance or HMRC Christmas party allowance each tax year is worthwhile.
Other tax tips
Please read our article covering tax tips for contractors. This includes many handy tips you should be aware of when you have a limited company. This also includes our latest advice for the best tax planning ideas.
The annual Christmas party / annual event
Claiming for the annual event allowance
The Annual Event is a good incentive a company can claim each tax year (this is not available for sole traders). This claim is an event or a series of events you can enjoy throughout the year.
To clarify, this is an exemption rather than an allowance. Furthermore, this is worth your while to claim as it is tax-deductible, even though it is not a significant amount.
The Christmas party -the exemption itself
When you hold your HMRC Christmas party, there’s no exemption from tax as such. However, when a business has an annual event, HMRC does give limited tax relief. This is on the basis that you can meet certain conditions.
- The combined cost of the annual event or events must not exceed £150 per head during the tax year.
- The claim is for an event or events. This outing can include the annual staff party, and you can claim for this under the HMRC Christmas party allowance.
- The Annual Event is available to all of your employees.
- The £150 exemption does not apply to company shareholders if they are not a director or employees.
- The director or employee who attends can also bring a guest if they are partners or family members.
If these conditions are met, and you do not exceed the £150 limit per person, these costs will be tax deductible. However, if the £150 limit is exceeded, the costs will need to be reported as a taxable benefit in kind (BiK). In this case, the BiK will be shown on form P11D, and you and your company will pay National Insurance on this while you will pay tax on this.
A claim for the annual staff party/annual function
As a company director, you can claim for the expenses incurred within the annual event allowance. You can hold this for yourself and your partner. If you have any employees, you could also provide an event such as a Christmas party. You could also provide another outing and record this cost as a Staff Welfare Expense.
The tax treatment of the event or events during the tax year will be that the cost of these is tax-deductible, providing that the total does not exceed £150 per person.
Furthermore, the event or events must be open to all staff of the company to attend.
Please note that you do have to hold the annual party or events to be able to make this claim. You cannot simply claim a fixed sum of £150 cash if you do not spend any money. Therefore, you should obtain and retain receipts that relate to these costs. As with many businesses nowadays, they prefer to e-mail receipts to their customers. If this is the case, you can give them your email address, and they will do this. As a result, you will receive the receipt electronically, or you can print it out if you prefer a hard copy.
Over the tax year, you should calculate the cost or the total number of events and work out the cost per head.
VAT consideration and VAT Notice 700 65
Can I reclaim the VAT on the cost of the party or the annual event?
Please be aware that the guidance from HMRC VAT Notice 700/65 states the VAT position. You cannot reclaim the VAT element on your annual event or office Christmas Party allowance expenses if only the directors and their partners attend the event. This is because the goods or services are not for a business purpose.
On the other hand, you can reclaim the input VAT incurred if the directors and partners attend an annual staff party alongside other employees. HMRC’s guidance here is, `we accept that the tax is input tax, and we do not block it from recovery.’
When you hold an annual event, as is the case with all other business expenses that you incur, please make sure that you obtain a receipt.
Our VAT guide gives a more in-depth view on VAT. for contractors and small business owners.
When you run a UK limited company you can also pay trivial benefits to directors and staff. The limit for directors is £50 per time, up to six times per year. These benefits cannot be cash, vouchers that you can exchange for cash or a reward for any type of work. However, they can cover basically any other cost and such a cost could be for entertaining staff or directors. Please read our article on trivial benefits to find out further details here.
We are sure you will agree that an event or events throughout the year are crucial to motivating your staff. Also, this is an excellent way to improve your staff’s morale. Your annual event or office Christmas party is also an excellent way to let your hair down and should be a day or night to remember. Indeed, this will come after the daily stresses of work. If the combined total cost is within the £150 exemption, including VAT, and is available to all employees, you can also claim for the VAT element for staff. Please refer to VAT Notice 700 65 for guidance on the VAT element.
An annual event can be a nice meal in a restaurant of your choice. It can also be a day out at the races. It might also involve a trip to see a good artist in concert or a good old knees-up in your local. Most importantly, if one of your Annual Events is at the end of the year, it could be the best Christmas party ever. Therefore, please make sure that you enjoy yourself and do not embarrass your fellow work colleagues!
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