With the Christmas party season well under way and permanent employees attending party nights, we often get asked about what contractors can claim in respect to hosting an event of their own.
Unlike client entertaining, staff entertaining is a deductible expense for Corporation Tax, relief will therefore be given on the entire cost incurred. Providing the cost is less than £150, it will be treated as a tax free benefit for the employee, however if the cost exceeds £150 per head then the entire amount (not just the portion exceeding the limit) will be assessed as a Benefit in Kind and subject to Income Tax and Employers National Insurance. Therefore, in order to ensure that there are no tax consequences, costs should not exceed £150 per head.
In order for an event to qualify as a tax free benefit, the event must be open for all employees to attend. Employees may be accompanied by a guest, however if guests are permitted then all employees must have this entitlement. The cost per head can include accommodation, transport, food, drink and entertainment – VAT is also included in the cost irrespective of whether the Flat Rate Scheme is used.
If the Flat Rate Scheme is not used, VAT can be reclaimed on the event cost. However, if partners are invited then only the VAT relation to the cost for employees can be reclaimed.
Billy is an IT Contractor and supplies his services to a major financial institution through a limited company that is jointly owned by his wife. Billy is the only employee of the company and is paid a small salary each year.
In the run up to Christmas, Billy decides to celebrate another successful year in business. He therefore organises an evening with food and drinks in a city about 30 miles from home and invites his wife to join him. He pays for train tickets, a meal and an overnight stay in the city; the total cost of this is £250 (inc VAT). As there were two people in attendance, the cost per head is £125 and the whole amount is classed as a tax free benefit.
If you have any questions on how this allowance works, please get in touch with a member of our New Business team on 0330 024 0406 or alternatively email firstname.lastname@example.org.