An employer can spend up to £150 a year per person on entertaining employees (including directors and company secretaries).
Companies that employ dozens of workers probably arranged their Christmas party months ago. But if you don’t have any staff, say, there’s just you, or you and your partner, you might be considering a less formal Christmas do, such as a meal and a stopover at a nice hotel. Will the exemption still apply in this situation?
Good news! The legislation spells out the rules to the exemption pretty clearly. There’s no restriction on the size of business. Whether your workforce numbers 1,001 or just one, the exemption applies.
It gets better: the exemption is per head rather than per employee, so you can also pay for spouses and partners to come along without worrying about a benefit-in-kind charge.
As far as Corporation Tax is concerned, it makes no difference whether or not the Christmas party is a taxable benefit-in-kind. Either way it can claim a deduction for the cost. But this doesn’t mean you should plough ahead expecting to gain a financial advantage. The key to making this tax break pay is maximising the BiK exemption.
However, there is a trap. Go a penny over the £150 (including VAT) per head budget and the full cost becomes taxable as a benefit-in-kind. The employee will pay income tax and National Insurance, and the employer will be charged Class 1A National Insurance.
There is a get out. The restaurant, hotel etc. should be booked in the company name and if there’s any danger of the £150 limit being exceeded the director or business owner should be authorised to pay the bill personally and claim back only up to £150 per head from the company – supported by receipts of course. This ensures the cost to the company stays within the exemption.
The exemption applies to all employers, but sole traders or partnerships cannot claim an income tax deduction on entertaining their proprietors.
Finally, the party has to be open to all employees. This means that for a husband and wife company it could be their Christmas dinner!