As a UK business owner, there is a tax exemption to be aware of called the Annual Event. This covers your office Christmas party as well as other events during the course of your company’s financial year. If the party is for you and your employees and providing certain criteria is met (see VAT Notice 700 65), you can claim for 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 certain financial incentives. In fact, nowadays, this annual allowance is now known as the `Annual Event’. If you are a UK business owner, it is worthwhile making a claim for the Annual Event Allowance or HMRC Christmas party allowance each year.
Other tax tips
Please have a read of our article covering tax tips for contractors for handy tips that you should be aware of when you have your own. This includes our latest advice for best tax planning ideas.
The annual Christmas party / Annual Event
Claiming for the Annual Event Allowance
The Annual Event is a good incentive that is claimed by companies each year (this is not available for sole traders). This claim is an event or a series of events that you can enjoy throughout the year.
To clarify, this is an exemption, rather than an allowance. Furthermore, this is worth your while to claim, even though it is not a great 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 holds an annual event, HMRC does give limited tax relief and 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 office Christmas party and you can claim for this under the HMRC Christmas Party allowance.
- The Annual Event is available to all of your employees.
- The exemption does not apply to company shareholders, if they are not a director or employee.
- The director or employee that attends, can also bring a guest if they are a partner or a family member.
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 benefit in kind on form P11D and you and your company will pay tax and National Insurance on this.
A claim for the company Xmas party costs / Annual function
As a company director, you can claim for the Annual Event expenses. You can hold this for yourself your partner. If you have any employees, you could also provide an event such as a Christmas party or other outing and simply record the cost of this as a Staff Welfare Expense.
The tax treatment of the event or events during the year will be that the cost of these are tax-deductible, providing that the total does not exceed £150 per person.
Further to this, the event or events must be open to all staff of the company to attend.
Please note, though, 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 then have the receipt electronically or, you can print it out if you would prefer a hard copy.
Over the course of the 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, the guidance from HMRC VAT Notice 700 65 states the position on VAT. You are not able to reclaim the VAT element on your Annual Event or office Christmas Party allowance expenses if only the directors and their partners attend the event. The reason for this is because the goods or services are not for a business purpose.
On the other hand, you can reclaim the input VAT if the directors and partners attend a 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.
OurVAT guide gives a more in-depth view on VAT, for contractors and small business owners.
I am sure you will agree that an event or events throughout the course of the year are key to motivate your staff. Also, this is an excellent way to improve your staff’s morale. Your Annual Event or office Christmas party is also a great way for you 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 this. 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 important, 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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