Annual Events: Contractor Christmas Parties

You can find the original article on the Mitchell Charlesworth site here.

Are you the owner of a UK limited contractor company and planning to host a Christmas party, but are being put off by the cost of doing so? That’s not a surprise. Events companies and venues charge their highest prices at this time of year, and it can be hard for small businesses to fit that into their budgets.

Fortunately, there is a festive helping hand available from HMRC in the form of the Annual Event allowance—but what is it, how do you know if you’re eligible, and how can you claim it?

What is the Annual Events allowance?

When an employer provides social functions for its staff this can be considered a ‘taxable benefit’, and there are certain National Insurance and reporting obligations. However, there is an exemption available for events that:

• Are open to all employees
• Are annual, such as Christmas parties
• Cost £150 or less per person

In these cases, limited companies can claim the cost of the Christmas party as an allowable expense.

For example, if you have a team of 50 people and pay £7,000 for your Christmas party, the per-head cost would be just £140, and therefore exempt. However, if just 45 people attend (and assuming you can’t get a refund from the venue for the five people that didn’t attend)  the cost-per head increases to £156. This means the full cost of the party would be considered a taxable benefit.

How to know if your Christmas party is eligible

We’ve already covered how a limited company’s Christmas party is only eligible for the Annual Events allowance if it’s held every year, costs £150 per person or less, and is open to all employees—but what if you have multiple offices at different locations, or want to hold departmental Christmas parties? Fortunately, as long as every employee working out of a specific office or for a specific department is allowed to attend, these events will still be eligible.

I’m the sole employee in my limited company—can I still claim?

If you’re a contractor and you’ve set yourself up as a limited company, you can still claim the £150 Annual Events allowance, even if you’re the only employee. However, remember that you must actually hold an event to claim for this.

I’m a sole trader—can I claim the Annual Events allowance?

Unfortunately, the Annual Events allowance is only available to limited companies. As a sole trader, you are unable to claim back the cost of any social functions as part of your self-assessment tax return.

My company holds multiple annual events per year—does this affect the allowance?

The Annual Events allowance is applied across all annual social functions your company holds, which means the total cost of all annual events you hold must not exceed £150 per head.

As an example, if you host a Summer barbeque and a Christmas party, the combined cost of these must not exceed £150 per head. If the threshold is exceeded, the amounts must be reported as a taxable benefit in kind (BiK).

Need support?

Are you a contractor operating a limited company, but need support in understanding what you can and can’t claim? Whether you’re new to contracting or have been freelancing for decades, our expert team of contractor accounts can help. The services we offer include:

• Advice on structuring your limited company
• Companies House registration
• Bookkeeping
• HMRC registrations for PAYE, VAT and Corporation Tax
• VAT registration

The best way to find out if you could benefit from our services is to book a free consultation today. We’ll review your current situation, advise on where we think we can support you in becoming more tax efficient, and how we can make sure you remain compliant with your obligations.