Operating outside IR35? Say ‘thanks, but no thanks’ to that company Christmas party invite!

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

There are a lot of benefits to being self-employed, like managing your own schedule and choosing the projects you get to work on, but there are some downsides too. 

One of the biggest is missing out on the social side of being an employee. Whether you work from home or you’re a contractor who works from your clients’ offices sometimes, it’s not easy to build relationships, while you’re also going to miss out on the sorts of company events you get to attend when you’re full-time employed—but what if one or more of your clients invites you to the Christmas party? Unfortunately, you’re going to have to politely decline. Here’s why…

Does attending a client’s Christmas party put you ‘inside’ IR35?

The first thing to say is that attending a client’s Christmas party doesn’t necessarily place you inside of IR35 if every other element of your contractor-client relationship is in-line with working outside of IR35. 

For example, if you have control of your working hours and location, work with your own equipment and have the option of saying no to certain projects, it’s unlikely that simply attending their Christmas party would put you inside IR35.

However, it is a factor, so if there’s any uncertainty over elements of a working arrangement with a client, you should turn down the offer or offer to pay to attend.

When investigating a contractor-client relationship, HMRC are likely to consider whether the contractor is taking a financial risk, how many other clients the contractor has, and if the contractor is considered ‘part and parcel’ of the client’s workforce—and it’s this ‘part and parcel’ consideration that’s important here.

Although HMRC does not usually consider ‘part and parcel’ as part of an IR35 test, it is in their IR35 Employment Status Manuals and is covered by the online ‘Check Employment Status for Tax’ (CEST) test. Attending company social events could be argued to fall into the ‘part and parcel’ consideration and damage the IR35 status of an engagement.

Hosting your own Christmas party as a contractor

Fortunately, if you’re a contractor that operates as a Limited Company, you can still treat yourself to a Christmas event.

Limited companies can take advantage of the Annual Event allowance, which allows you to spend up to £150 per person across an entire year specifically for events like summer and Christmas parties—even if you don’t employ anyone else. This £150 budget covers any cost related to the event, including food, drink and the cost of attending a ticketed event, but it can also be used for travel expenses and overnight stays where necessary. You can even invite people to your event, and HMRC guidance confirms that family and household members are allowed to attend, with £150 per head available for each guest.

Note that this £150 isn’t deductible from the total cost if you spend more than £150. For example, if your Christmas party costs £151 per head you’ll be liable to pay tax and NI on the full £151. You also won’t be able to claim back VAT if you’re the only employee as the ‘goods or services are not used for a business purpose’. However, you will be able to claim it back if you have at least one employee.

How Warr & Co can help

If you’re a contractor you want to be focusing on the thing you do best—serving your clients—not spending hours of your time figuring out your tax liability.

Here at Warr & Co we work with contractors from all sectors, and we offer specialist accounting services for consultants, including:

• How best to structure your business
• Completing registration procedures with Companies House
• Bookkeeping support
• VAT and PAYE filing support
• And more

To find out how we can help you with accountancy and tax issues request a free consultation today.