Christmas party allowance for UK contractors

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Introduction 

As a UK limited contractor company owner or business owner, you may be wondering if you can claim for a Christmas party. Perhaps you’re considering holding an annual party or contractor’s party for your staff at the end of the year. In the UK, there is a contractor Christmas party allowance known as the limited company Annual Event allowance. But is your contractor’s Christmas party tax-deductible? This guide is here to help. We’ll explore how to claim for your contractor Christmas event under the company Xmas party allowance, how the company party allowance works, and what VAT notice 700 65 includes about office Christmas parties and company events.

The `Annual Event’ is the term used by HM Revenue & Customs for the annual Xmas party allowance. This covers your director’s Christmas party allowance, office Xmas party and other events during your company’s financial year. To be eligible for this allowance, the annual Christmas party (UK) must be for you and your employees, and specific criteria must be met (see VAT Notice 700 65). If these conditions are fulfilled, you can claim the company Xmas party allowance as one of your genuine business expenses.

Understanding the benefits of claiming the Annual Event and staff party allowance can be advantageous for your business. This guide will walk you through the process of claiming for your annual staff Christmas lunch or other event. We’ll also explore how the Annual Event and staff party allowance works and what factors to consider. Additionally, we’ll discuss staff entertainment and how to claim VAT on staff entertainment. To inspire you, we’ll share some good ideas for your annual party event and some company Xmas party ideas as examples for Christmas work events.

Initial thoughts 

What is the HMRC Christmas party allowance (limited company)?

As a UK business owner running a UK limited contractor company, you may sometimes feel that the tax system doesn’t offer many advantages. However, HM Revenue & Customs (HMRC) are not a complete scrooge. They provide business owners with specific financial incentives during the year, including the annual company allowance for your contractor Xmas party, now known as the `Annual Event’. This is a legitimate allowance that you can confidently claim each tax year, knowing that you are operating within the tax regulations.

HMRC’s guide on `Expenses and benefits : social functions and parties‘ explains the rules for the UK Annual Event in more detail. Furthermore, EIM21690 goes into further detail in this respect, and we cover these areas later in this guide.

Other tax tips   

Besides your limited company Christmas party expense, please read our articles, which cover a guide to limited company contracting and tax tips for UK contractors. Our tips guide contains many handy tax-saving tips for your business. Moreover, it includes details of company write-offs you should know when running a contractor limited company. Further, this includes our latest advice for UK contractor limited company allowances and the best tax planning ideas. 

What should you consider for the Christmas party allowance/annual event? 

Ensure you hold your annual event or events

The limited company Annual Event is a good incentive for a company to claim each tax year (this isn’t available for sole traders). The claim can be made by contractors and small limited company owners alike. As part of the rules, you can claim for an event or a series of events you can enjoy throughout the year. If you’re new to contracting and don’t have any employees, you can hold a sole director Christmas party. However, you must hold an event to claim for this (see later).

To clarify, the claim for your business Christmas party tax allowance is an exemption rather than an HMRC annual allowance. Furthermore, it’s worth claiming as it’s Corporation Tax-deductible, even though it’s not significant. 

Company Christmas party

As the end of the year and festive season arrives, many business owners decide to throw a Christmas party. However, what can you claim for your Ltd company Christmas party allowance? There’s no tax exemption when you hold your contractor Christmas party (limited company). However, when a business has an Annual Event, HMRC gives limited tax relief. Therefore, you can claim your company party tax deduction on the basis you can meet certain conditions:

  • The combined amount of the event or events mustn’t exceed £150 per head during the tax year.
  • The claim is for an event or events. This outing can include the annual staff party or your contractor’s annual party, and you can claim this under the HMRC rules.
  • The Annual Event (or your contractor’s Annual Event when you’re contracting) is available to all your employees.
  • The £150 Annual Event exemption doesn’t apply to company shareholders who are not directors or employees.
  • The director or employee who attends can each bring a guest if they’re partners or family members.

If these conditions are met for your limited company Christmas meal allowance or contractor company event, and you don’t exceed the £150 limit per person, the amounts are tax deductible. However, if the limit is exceeded, the amounts must be reported as a taxable benefit in kind (BiK). In this case, the BiK is shown on form P11D. As a result, your company will pay National Insurance, and you’ll pay tax on this personally.

How can I claim expenses for the annual staff party or yearly function?

As a company director, you can claim for the expenses incurred within the limited company Annual Event allowance. As mentioned, this includes your limited company Christmas party allowance. You can hold your contractor company party for yourself and your partner. Indeed, if you have any employees, you could provide an event such as a corporate Christmas party. Moreover, you could pay for another outing and record the amount as a Staff Welfare Expense.

The tax treatment of the company’s Christmas dinner, event, or events during the tax year is that the amounts are tax-deductible. Indeed, this is provided that your work’s Christmas party expenses don’t exceed £150 per person. Furthermore, the event or events must be open to all company staff to attend.

You must hold the annual work Christmas party or events to qualify for a claim for the company Xmas party allowance. Indeed, you can’t simply claim a fixed sum of £150 cash if you don’t spend any money on your office Christmas party. What’s more, you should obtain and retain receipts that relate to your contractor’s annual party, contractor Xmas event or a series of events. Many businesses nowadays prefer to e-mail receipts to their customers. If this is the case, you can give them your email address. As a result, you’ll receive the receipt electronically, and if you prefer a hard copy, you can print it out.

Over the tax year, you should calculate the total spent and the total number of events, including your Christmas work party and work out the cost per head.

What are some excellent annual staff party ideas?

As part of holding your company event or events, let’s look at some annual staff party ideas. Therefore, to motivate your staff, you could organise:

  • A drinks night at a trendy establishment.
  • Ten-pin bowling at the local bowling hall.
  • An Escape Room event.
  • A pub quiz.
  • Murder mystery weekend.
  • A good food night.
  • Karaoke night.
  • A cocktail party.
  • A games night.

Regarding some staff Christmas party ideas, you could organise:

  • A festive meal at a great local establishment.
  • A holiday fancy dress party.
  • Office charity event.
  • A casino night.
  • A works party event.

Indeed, there are many more staff Xmas party ideas to consider however, the above are some excellent ideas. 

What does VAT Notice 700 65 say about the Christmas party allowance? 

Can you claim VAT on the Christmas party or Annual Event for directors & staff? 

Can you claim VAT on the staff Christmas party or your director’s annual work Xmas party? When we investigate, can you claim VAT back on staff Christmas party, or can you claim VAT on staff entertaining? The official guidance HMRC VAT Notice 700/65 states when you can claim VAT on staff entertainment and how VAT treatment works. VAT 700/65 explains that you can claim VAT on staff meals. This also demonstrates that you can claim VAT on staff entertainment for your business.

When you run your business, it can’t reclaim the VAT element on the contractor company event or company Xmas party allowance expenses if only the directors and their partners attend the event. This is because the goods or services aren’t for a business purpose. On the other hand, you can reclaim the input VAT on the staff element if the directors, their partners, and staff attend an annual staff party. HMRC’s guidance is, `we accept that the tax is input tax, and we do not block it from recovery.’

When you hold an Annual Event, please ensure you obtain a receipt, as is the case with all other business expenses you incur.

Our guide to VAT gives a more in-depth view of how the UK VAT system works. Therefore, it’s worth reading for limited company contractors and small business owners.

Trivial benefits & business gifts

When you run a UK limited company, you can pay trivial benefits to directors and staff in addition to your annual event allowance. Another area you can consider is business gifts.

The trivial benefits limit for directors is £50 per time, up to six times yearly. These benefits can’t be cash, vouchers you can exchange for cash or a reward for any work. However, they can cover other expenses, such as entertainment or purchasing goods, e.g., a bottle of wine. Please read our guide on trivial benefits to learn more details. What’s more, business gifts are another area to consider. However, you should be aware of the UK tax rules that apply, and our guide on business gifts goes into these in more detail.

Final thoughts

We’re sure you’ll agree a contractor company event or events throughout the year are crucial to motivating your staff. Above, we’ve set out some company events and office Xmas party ideas you can consider for your company. Therefore, the annual Christmas party allowance is an excellent way to entertain your staff. What’s more, your business can save tax at the same time. Indeed, the Xmas office party or event is an excellent way to improve your staff’s morale.

Your limited company annual event or office Xmas party is an excellent way to let your hair down and should be a day or night to remember. Indeed, the staff Christmas party or event you hold will come after the daily stresses of work. Suppose the combined total of your contractor company’s annual event or events is within the £150 exemption, including VAT, and is available to all employees. As a result, your company will save on Corporation Tax, and it can claim 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 or a day out at the races. It might 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 company events is at the end of the year, it could be the best Christmas party ever. Therefore, please ensure you use the annual party allowance, enjoy yourself, and don’t embarrass your colleagues at the Xmas do!

Link to Contractor Advice UK group on

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Published On: April 6th, 2024 / Categories: Expenses, Expenses Guides, featured /

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