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Introduction
As a UK limited company contractor or business owner, you may wish to hold an annual party or your contractor’s party for your staff at the end of the year. Therefore, in the UK, is there a contractor Christmas party allowance? If 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 article, 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 also look at what VAT notice 700 65 entails in relation to office Christmas parties and company annual events.
It’s important 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 Christmas 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 a genuine business expense.
In this guide, we’ll take a look at what to consider for your annual staff Christmas lunch or other event. Furthermore, we’ll investigate how the Annual Event allowance 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 also consider some good ideas for your annual party event and some company Xmas party ideas as examples for Christmas work events.
Initial thoughts
The company Xmas 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 is 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 are a UK business owner, claiming the limited company Annual Event allowance or HMRC Christmas party allowance (limited company) each tax year is worthwhile.
Common questions
Many contractors or business owners may have questions around what they can claim for their annual Christmas party or event. Therefore, here are some common questions and thoughts that business owners will ask or consider:
- Is Christmas party tax-deductible?
- Are Christmas party expenses tax-deductible?
- Is my staff Christmas party tax-deductible?
- Is my company 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 will 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 article covering tax tips for UK contractors. Basically, this contains lots of handy tips when you have your own business. In addition, 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
Claim for the Annual Event allowance
The limited company Annual Event is a good incentive a company can claim each tax year (this is not 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 are new to contracting and do not 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 your while to claim as it is Corporation Tax-deductible, even though it is 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 is no exemption from tax as such. However, when a business has 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 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 or your contractor’s annual party, and you can claim this under the HMRC Christmas party allowance.
- The Annual Event (or your contractor Annual Event when you are contracting) is available to all of your employees.
- The £150 Annual Event 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 for your limited company Christmas meal allowance or Annual Event, 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. 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 that the total of your works Christmas party expenses do not 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 Christmas party allowance. You cannot simply claim a fixed sum of £150 cash if you do not 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 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 including your Christmas work party and work out the cost per head.
Annual staff party ideas
When you hold your Annual 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.
- An Escape Room event.
- A pub quiz.
- Murder mystery weekend.
- A good food night.
- Karaoke night.
- A cocktail party.
- A games night.
With regard to staff Christmas party ideas, you could organise:
- A festive meal at a great local establishment.
- A holiday costume party.
- Office charity event.
- A casino night.
- A works party event.
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 cannot reclaim the VAT element on the Annual 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 are not 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 that you incur, please make sure that you obtain a receipt.
Our VAT guide gives a more in-depth view on VAT for limited company contractors and small business owners.
Trivial benefits
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.
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.
Final thoughts
We are 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 Annual 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. In addition your business can save tax at the same time. What’s more, 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 Annual Events is at the end of the year, it could be the best Christmas party ever. Therefore, please make sure that make use of the Christmas party allowance and enjoy yourself and do not embarrass your fellow work colleagues at the Xmas do!
Link to Contractor Advice UK group on
