Contractors' Questions: Can my spouse get the £150 Xmas party exemption?
Contractor’s Question: To have a ‘tax exempt’ Christmas party, can I claim £150 for me, as my PSC’s director, and a further £150 for my partner – who is unrelated to the business, other than the moral support they offer? And what if we had a party in July; is the allowance less?
Expert’s Answer: The law is surprisingly generous in this area. There is no tax charge on the cost of an annual party "or similar annual function" provided the cost does not exceed £150 per head. That amount can be split over any number of "annual functions" in a given tax year provided the total doesn't exceed £150. So it could cover a summer barbecue at £70 per head plus a Christmas party at £80 per head.
But it's a limit, not an allowance: if for example a party costs £200 per head, the full cost is taxable as a benefit, not just the excess of £50. And if you have, say, a barbecue at £70 per head and a Christmas party at £100, they can't both qualify -- so you would take the exemption against the party and suffer tax on the barbecue.
It's £150 per head, not per party or per employee. So, strictly-speaking, if a company has only one employee, that employee could invite all his family and friends to the party at the company's expense and pay not a penny in tax -- provided the cost per head is no more than £150.
Beware though; if the cost per head of people actually attending goes over £150 either because the cost goes over budget or there are too many no-shows, the employee will be fixed with a bill for tax on the cost of the whole thing, not just his own proportion. And in an extreme case like that, it is possible that HMRC would seek to deny tax relief to the company on the grounds that the party wasn't a legitimate business expense. Furthermore, it has to be an "annual" party or similar "annual" function. So don't expect to get away with charging your wedding reception or your one-off "big birthday" party to the company!
Generally-speaking, a one-person company that doesn't push the envelope and sticks to something sensible like a really nice evening out once a year for the director and that director’s spouse / civil partner should be fine.
The expert was David Whiscombe, a partner at chartered accountancy firm BKL.
Editor’s Note: Related Reading –
Gifting and Entertaining for Limited Company Contractors
Contractors’ Questions: Is client Christmas Party a red flag under IR35?
Contractors’ Questions: Can I avoid the taxman at my Christmas party?