The staff Christmas party. A time for fun and frolics. But it's very easy to forget the cost of such follies, and the effect it can have on your business. Luckily, Turners Accounting And Business Solutions has some excellent advice concerning tax and the Christmas party.
The One Man Christmas Party
There’s no taxable benefit-in-kind for your employees where you spend up to £150 per head on a Christmas party or other annual function. But if your staff consists of just you, will this qualify for a tax-free knees-up?
Staff Exemption – What The Law Says
Unusually, the legislation spells out the rules to the exemption pretty clearly. S.264 of the Income Tax (Earnings and Pensions) Act says,”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. While there are a few more conditions, there’s no restriction on the size of business. Whether your workforce numbers 101 or just one, the exemption applies. What’s more, it stretches to guests meaning your spouse or partner can come along too- tax and NI-free of course!
Company Tax Deduction
As far as Corporation Tax (CT) is concerned, it makes no difference whether or not the Christmas party is a taxable BiK. Either way it can claim a deduction for the cost. But this does not mean you should plough ahead expecting to gain a financial advantage. The key to making this tax break pay is maximising the BiK exemption.
Trap. Go a penny over the £150 per head budget and the full cost becomes taxable. But there’s an easy way to avoid this trap.
Tip 1. 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 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.
Tip 2. This strategy works no matter how many employees you have, but it’s probably only practical where you have a few and they are prepared to personally foot the cost in excess of £150.
Chris Turner of Turners Accounting and Business Solutions has over 25 years experience in supporting Bolton businesses through an individually tailored service, ranging from bookkeeping to VAT returns. If you would like more information about all of this or the services he can offer to you, give him a call on 01282 699383
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