Many of Carrington's clients already claim the available £150 for a 'Christmas party' for themselves but the question comes up every year. We thought it would be a good idea to produce a more detailed explanation of this tax free exemption to make sure you get the full benefit this coming Christmas.
The majority of UK companies employ many workers and usually aim to keep the cost of any Christmas bash within the Taxman's £150 exemption. This means that their staff will not be hit by a benefit in kind (BiK) tax charge. Many of Carrington's clients own their Limited company and are the sole employees so will the exemption still apply to them?
The legislation is very clear. S.264 of the Income Tax (Earnings and Pensions) Act states ' Where in the tax year only one annual party or similar annual function to which this section applies is provided for the employer's employees...no liability to income tax arises in respect of its provision if the cost per head of the party or function does not exceed £150'. Whether your workforce is 100 or just one the exemption applies. In addition it stretches to guests, meaning your spouse or partner can come along too - tax and NI free!
Any Company Tax Deduction?
As far as Corporation Tax is concerned,it makes no difference whether or not the Christmas party is a taxable BiK. Either way the company can claim it as a deduction.
But.....
If you go just one penny over the £150 per head budget the full cost becomes a taxable BiK - not just the amount over the £150. You must keep within the £150 limit.
However whilst you will want to maximise the annual party tax and NI exemption sometimes its not so easy to be exact with the budget. For example your £5 'one for the road' last drink might result in a tax and NI bill of up to £300 but there is a way to avoid this trap:
You should book the hotel, restaurant etc in the company name and if there is a possibility that the £150 could be exceeded the director should be authorised to pay the bill personally. He /she can then claim back the £150 per head from the company but the claim must be supported by receipts. This ensures the cost to the company stays within the exemption.
So wherever you go this festive season.........ENJOY!!
