When you’re running a UK limited contractor company or have your own business, can you claim for a Christmas party? It could be the case; you may wish to hold an annual party or contractor’s party for your staff at the end of the year. Therefore, in the UK, is there a contractor Christmas party allowance? When we do our research on a contractor party for UK contracting professionals, there’s a tax exemption called the limited company Annual Event allowance. However, is your contractor Christmas party tax-deductible? In this guide, we’ll investigate how to claim for your contractor Christmas event under the company Xmas party allowance. In addition, we’ll consider how the company party allowance works and look at what VAT notice 700 65 entails in relation to office Christmas parties and company events.
It’s key to note that the `Annual Event’ is now the new term used by HM Revenue & Customs for the annual Xmas party allowance. This covers your director’s Christmas party allowance or office Xmas party costs and other events during your company’s financial year. Let’s suppose the annual Christmas party (UK) is for you and your employees and specific criteria are met (see VAT Notice 700 65). In that case, you can claim the company Xmas party allowance as one of your genuine business expenses.
In this guide, we’ll look at what to consider for your annual staff Christmas lunch or other event. Furthermore, we’ll investigate how the Annual Event and staff party allowance works and look at what to consider here. In addition, we’ll also go over staff entertaining and claiming VAT on staff entertainment. Further still, we’ll consider some good ideas for your annual party event and some company Xmas party ideas as examples for Christmas work events.
The Christmas party allowance
When you run your own UK company for contracting, you may feel that the tax system does you very few favours. Thankfully, HM Revenue & Customs (HMRC) are not a complete scrooge. Therefore, it’s good to know that during the tax year, they do give business owners specific financial incentives. This annual company allowance for your contractor Xmas party is now known as the `Annual Event’. Indeed, if you’re a UK business owner, claiming the limited company Annual Event allowance or HMRC Christmas party allowance (limited company) each tax year is worthwhile.
HMRC’s guide on `expenses and benefits : social functions and parties‘ explains the rules of the UK Annual Event. Furthermore, EIM21690 goes into further detail in this respect and we explain these areas later in this guide.
Many contractors or business owners may have questions around what they can claim for their annual Xmas party or event. Therefore, here are some common questions and thoughts that business owners will ask or consider:
- Are Christmas party expenses tax-deductible?
- Is my staff Christmas party tax-deductible?
- When is staff entertainment tax-deductible?
- Is staff Christmas party allowable for tax?
- Are company parties tax deductible?
- Can I claim VAT on staff Christmas party?
- Is there VAT on staff entertainment?
- Can I claim VAT on staff entertaining?
- Can you reclaim VAT on staff entertaining?
Therefore, in this guide, we’ll consider the above and discover what and when you claim for your Annual Event.
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. Basically, our tips guide contains lots of handy tax saving tips when you have your own business. What’s more, it includes details of company write offs you should be aware of 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 to consider for the Christmas party allowance / annual event
Claim for the cost of an annual event
The limited company Annual Event is a good incentive a company can claim each tax year (this isn’t available for sole traders). The claim for the annual Christmas party allowance/Annual Event 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, to claim for this you do need to hold an event (see later).
To clarify, the claim for your business Christmas party tax allowance is an exemption rather than a HMRC annual allowance. Furthermore, this is worth claiming as it is Corporation Tax-deductible, even though it’s not a significant amount.
The company Christmas party
As the end of the year comes around, what can you claim for your ltd company Christmas party allowance? Basically, when you hold your contractor Christmas party (limited company), there’s no exemption from tax as such. However, when a business holds an Annual Event, HMRC does give limited tax relief. Therefore, you can claim your company party tax deduction on the basis that you can meet certain conditions:
- The combined cost 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 Xmas party allowance.
- The Annual Event (or your contractor Annual Event when you’re contracting) is available to all your employees.
- The £150 Annual Event exemption doesn’t apply to company shareholders if they’re not a director or an employee.
- The director or employee who attends can also bring a guest if they are 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, these costs will be tax deductible. However, if the £150 limit is exceeded, the costs need to be reported as a taxable benefit in kind (BiK). In this case, the BiK will be shown on form P11D. As a result, your company will pay National Insurance and 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 limited company Annual Event allowance. As mentioned, this includes your limited company Christmas party allowance. Basically, you can hold your contractor company party for yourself and your partner. Indeed, if you have any employees, you could also provide an event such as a corporate Christmas party. What’s more, you could also provide another outing and record this cost as a Staff Welfare Expense.
The tax treatment of the company Christmas dinner, event or events during the tax year are that the cost of these is tax-deductible. Indeed, this is providing the total of your works Christmas party expenses don’t exceed £150 per person. Furthermore, the event or events must be open to all staff of the company to attend.
Most importantly, you do have to hold the annual work Christmas party or events to be able to claim the company Xmas party allowance. Indeed, you cannot simply claim a fixed sum of £150 cash if you don’t spend any money on your office Christmas party. Therefore, you should obtain and retain receipts that relate to the cost of your contractor annual party, contractor Xmas event or a series of events. 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’ll 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 including your Christmas work party and work out the cost per head.
Annual staff party ideas
Now, when you hold 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 trendy establishment.
- Ten pin bowling at the local bowling hall.
Regarding some staff Christmas party ideas, you could organise:
- A festive meal at a great local establishment.
Indeed, there will be many more staff Xmas party ideas to consider, however the above are some good ideas.
VAT treatment and VAT Notice 700 65 -Christmas party allowance
VAT on Christmas party or Annual Event for directors and staff
Can you claim VAT on 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, please be aware that the official guidance. HMRC VAT Notice 700/65 states when you can claim VAT on staff entertainment and how VAT treatment works. In VAT 700/65, it explains that you can claim VAT on staff meals. What’s more, it also explains that you can claim VAT on staff entertainment for your business.
When you run your own 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. Basically, 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 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 you incur, please make sure that you obtain a receipt.
Our guide to VAT gives a more in-depth view on how the UK VAT system works. Therefore, it’s certainly worth read for limited company contractors and small business owners.
Besides your Christmas party allowance/ Annual Event allowance, when you run a UK limited company you can also pay trivial benefits to directors and staff. Another area you can consider is business gifts.
The trivial benefits 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 guide on trivial benefits to find out further details. What’s more, business gifts are another area to consider. However, you should be aware of the UK tax rules that pertain and our guide on business gifts goes into these in more detail.
We’re sure you will agree that a contractor company event or events throughout the year are crucial to motivating your staff. Above, we have set out some company event and office Xmas party ideas that you can consider for your company. Therefore, the Christmas party allowance is a good way to provide entertainment for your staff. What’s more, your business can save tax at the same time. Indeed, the Xmas office party or event is also 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. If the combined total cost of your contractor company annual event or events is within the £150 exemption, including VAT, and is available to all employees then your company will save Corporation Tax and it can also 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 of your choice or a day out at the races. In addition, 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 Xmas party ever. Therefore, please make sure that make use of the Xmas party allowance and enjoy yourself and do not embarrass your fellow work colleagues at the Xmas do!
Link to Contractor Advice UK group on