The festive season is upon us, which means parties, Christmas dos and cheerful company gatherings. Christmastime is the perfect season to reward yourself and employees for their hard work – and you can even get a tax exemption for certain Christmas party expenses. Contractors can benefit too!
Limited company directors can claim expenses for annual functions, including Christmas parties and summer celebrations, up to a certain amount. These expenses are exempt from tax and National Insurance if they meet certain conditions – note that these are exemptions and not an allowance.
How to get tax relief for Christmas party expenses through a limited company
Christmas party expenses can include the costs of putting on the function, providing necessary transportation and accommodation and the VAT involved in these costs.
The party must meet these conditions to be claimable:
- The cost of the party is £150 or less per head (including VAT); this applies even for limited company contractors who are the only employee
- The function is annual i.e. a Christmas party
- The event is open to all company employees. For example, a small business cannot put on an event for just the directors and attempt to get a tax and NI exemption
If you only have one employee in the company which is yourself, which is common for most contractors, the cost can be exempt from tax and National Insurance (NI) up to £150. For example, you can go out for dinner as a Christmas treat and receive tax and NI relief on the cost.
Companies which have more than one employee that include all staff in the event can get the tax and NI exemption as long as amount is £150 per head or less. For example, if the cost per head is £160 you cannot claim any amount for tax and NI relief.
Company party expenses are an exemption, not an allowance
As mentioned in the previous example, you cannot hold a Christmas party that costs, say, £200 per head and be exempt from tax and NI up to the £150 limit.
If the cost does go over £150 per individual it will need to be reported on a P11D form, and tax and NI will need to be paid on the expense.
Our service-software package is the perfect combination for contractors and will allow you to complete a P11D form while giving you expert advice along the way. Contact us for more information.
If your company has more than one annual function per year
You are still able to get a tax exemption if you have more than one annual company function as long as the total cost of the events does not go over the £150 limit.
You held a company barbeque in the summer for all staff and the event cost £50 per head. You also held a Christmas party which cost £100 per head. The total cost is £150 so they can both be exempt from tax and NI, and they won’t have to be reported on a P11D.
How to calculate cost per head
This is straightforward if you are the only employee of your company. However for companies with two or more employees simply add up the total cost of the event (including VAT) and divide by the number of people who attended.
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