Contractors' Questions: How to throw a tax-free Christmas party?

Contractor’s Question: My limited company intends to throw a Christmas Party this week, but we would like to provide it to those attending – the company’s only two employees who are directors – as a tax-free benefit. How should we do this? And if we were to extend the invitation to the Company Secretary, would the party still be tax-free?

Expert’s Answer: For an annual event or function, a tax-free allowance of no more than £150 per employee is generally available. But the £150 encompasses all costs associated with the event, including food, drink, transport and any accommodation. You need to ensure the total £150 per head factors in the VAT on these costs.

For the event, if the company spends more than £150 per employee, the whole amount is taxable and not just the excess over £150.

As it is Christmas, you might consider using a PAYE settlement agreement (under which the employer would pay the tax and NICs on the employees’ behalf), but to avoid staff getting charged extra tax, ensure you have the settlement in place before the end of the tax year. It is generally recommended that events for staff, whether there are 2 or 20, are planned to be under the £150 limit.

The £150 tax-free allowance extends to all the would-be party-goers that you mention so, yes, your Company Secretary would be eligible.

The expert was Jon Sutcliffe, partner at Kingston Smith LLP.

Editor’s Note: Further Reading –

Contractors’ Questions: Is client Christmas party a red flag under IR35?

When clients blur your IR35 status

Wednesday 18th December 2013