Contractors’ Questions: Will Christmas party tickets exceeding £150 be a tax-free expense?

Contractor’s Question: I‘ve read and understood that, if I’m a limited company director, the Christmas party threshold is £150 per person, but will the event I’d like my company to host qualify? It’s going to be one director, the company secretary and our respective partners – all of whom I understand from this other ContractorUK piece can each enjoy the £150 limit.

The complication is that I’m looking at a December dinner-accommodation package priced at £275 for two people; purchasable only as a package for two. The venue will not split it down to cost per person but surely it’d still be fine with HMRC on the basis that £300 is the limit for two, and our bash is going to be 275 for two?

Drinks aren’t included in this package, so the four of us will agree to buy these personally. Is that the safest way to keep the entertainment tax-free? This is the only company bash we can do this year and we want to enjoy it. That means without HMRC ramifications!  

Expert’s Answer: Firstly, let’s remember that what we’re looking at here is an exemption from the usual Benefit-in-Kind rules in respect of entertaining for employees provided by a workplace. 

The £150 threshold: the background

Here, the company can spend some money entertaining staff and their nearest and dearest, get a corporation tax deduction for doing so, and the individuals involved don’t get penalised with personal tax deductions – provided the limit is not exceeded. That limit is £150 per person (attendee rather than employee), including VAT, per year. More detail on the criteria set by HMRC, alongside a few examples of where a limited company contractor’s party would be and would not be a claimable business expense, can be found here.

So in your scenario, we have a few things to be careful about. You mention that this is the only event of its kind this year – which is good. You’re going to use up virtually all of the exemption with this event, so in a future year, if multiple events occur, you need to look carefully at which ones can be accommodated within the limit and which not. Take further advice if this is the case.

Your particulars (cont.)

You mention a cost of £275 for two. We will take it as read that this is the cost including VAT – if not, and the VAT takes the event over £300 for two, then the exemption will not apply. Assuming the price quoted includes VAT, then £275 is the cost to the business, and it is perfectly reasonable to split this 50/50. There would have to be a justification for a different split, and it is not easy to see one.

A reasonable approach is required

It’s important to remember with these and similar rules that we should ensure we take a reasonable approach. Your question describes two office-holding members of staff bringing partners to the event, which is fine. HMRC would feel differently if each member of staff had a long guest list! However, here, the £150 limit is fully available, and so one might wonder how to utilise the remaining £24 per couple, without risking crossing the threshold and rendering the whole event taxable?

Cheers!

Finally, Christmas can involve a level of merriment! So it would be wise to book a drink on arrival -- added by you to the package, and charged to the company as part of the main bill. Selecting something sparkling at £12 per glass (including VAT) for example would produce a bill of £299 per couple. That way, the company credit card can be left at home, ensuring that no further business cost is incurred on the night -- and ensuring a Happy New Year for all!

The expert was Chris James, head of accounting operations at JSA Services.

Wednesday 23rd Oct 2019
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Written by Chris James

Chris James BFP FCA is a Chartered Accountant who regularly speaks on taxation matters affecting Limited Company contractors, umbrella workers and the recruitment supply chain. He is head of accounting operations at JSA Group, one of the UK’s largest contractor accountants and umbrella services provider. Chris is also the current Chairman of the FCSA.
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