It’s that time of the year when Christmas jumpers find their way out of the wardrobes and Christmas parties are fully underway, which means working out your expenses.
There are a handful of myths and misconceptions about claiming expenses for this annual event, which is something we’re going to the shed light on and make clear. Here’s our short guide to claiming expenses for your Christmas do:
To be exempt from paying tax and national insurance on the costs incurred by a Christmas Party, these guidelines should be followed:
- The event should cost £150 or less per head
- The event should be open to all employees. As a Contractor – this will most likely be just you
- If guests are invited such as family members, a separate cost of £150 per head can be applied
- The event should be held annually, so it can’t be a one-off night with your co-workers. However, your company can have more than one event per year, as long as the £150 total is not exceeded.
The cost per head can include travel, accommodation, drink and entertainment – as long it does not exceed £150.
Putting it into perspective
If a summer barbecue takes place which costs £40 per head, and the Christmas Party costs £130 per head, in this instance, the £150 limit has been exceeded and only one of the events will be allowable for tax relief.
It will typically work out more tax efficiently by applying the exemption to one event and leaving out the other. By doing this, you will be able to take advantage of the exemption for at least one event, rather than losing out on both.
HMRC state,
“Where there is more than one annual function potentially within the exemption, we do not expect employers to keep a cumulative record, employee by employee, of functions attended. But for each function the cost per head should be calculated. The cost per head of subsequent functions should be added.
“If the total cost per head goes over £150 then whichever functions best utilise the £150 are exempt, the others taxable.”
This basically states that if you have more than one event during the year, as long as the combined cost of the events is no more than £150 per head, not a penny more, the exemption can be used. It’s worth keeping in mind that this is an exemption – not an allowance.
Gorilla Accounting is a specialist accountancy firm exclusively for Contractors and Freelancers operating through a Limited Company or Umbrella Solution. If you would like more information, get in touch with our New Business Team by calling 0330 024 0406 or email info@gorillaaccounting.com.
