If you have your own business, can you claim for the annual Christmas party as a genuine business expense? Many contractors ask me what they can claim for this. Well, 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. 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’.
Other tax tips
Have a read of my article covering tax tips for contractors for handy tips you should know when you have your own business (this is a member only article and you can read it if you sign up as a member). This includes my latest advice for best tax planning ideas.
The Annual event
Claiming for the Annual event
The annual event is a good incentive that is claimed by companies each year (but not 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 this is only a small amount.
The exemption itself
When you hold your ‘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 cost of the annual event is less than £150 per person during the tax year.
- Also, the claim is for an event or events. This outing can include your Christmas party.
- 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.
A claim for the annual event
As a company director, you can claim for the annual event or events. You can hold this for yourself, your partner, and any of your employees.
The cost of the event is tax-deductible, on the basis that the amount that you claim over the tax year does not come to more than £150 per person.
Further to this, the event or events are open to all of the company employees to attend.
Please note, though, you do have to hold the event or events to make this claim. You cannot simply claim a fixed sum of £150 cash if you do not spend any money.
Can I reclaim the VAT on 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 Christmas party 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, make sure you obtain a receipt.
My VAT guide gives a more in-depth view on VAT. for contractors and small business owners.
I am sure you will agree with me, these types of events are key to motivate your staff. Also, this is an excellent way to improve your staff’s morale.
Your annual event or Christmas party is an excellent way for you to let your hair down. Indeed, this will come after the daily stresses of work. An `annual event’ can be an excellent 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 the Christmas party, please make sure that you enjoy yourself and do not embarrass your fellow work colleagues!
As a final thought, please take note the total cost of your annual events cannot exceed £150 per director or employee.
Link to Contractor Advice UK group on