Contractors’ Questions: Can two end-of-year parties both be tax-free?

Contractor’s Question: My co-director’s wife cannot make our company Christmas party which I’ve just booked, so we’re going to throw a late Autumn ball in addition. Is that compliant with HMRC’s rules on the £150 annual entertainment allowance?

Expert’s Answer: Firstly, it’s worth noting that what you’re referring to is an exemption, not an allowance. If you were to exceed the cost per head by a few pounds, the entire cost would be subject to National Insurance and tax.

So this £150 exemption (per person) covers multiple parties which take place during the year, not just the Christmas party. So, if you’re putting on a Christmas party, and an Autumn ball, the combined cost of both the events, per head, should not exceed a total of £150.

And if you allow employees to bring a guest or plus-one, such as a family member or partner, you’ll be able to claim an additional £150, including VAT per person.

You should note that this exemption is not applicable to sole traders but only limited companies. HMRC permits these companies to host annual events for employees to claim this cost as an expense, therefore receiving Corporation Tax relief.

Here are six considerations/conditions that must be made/met before the party can be totally exempt from National Insurance and tax:

  1. The party cannot exceed a total of £150 per person, including VAT
  2. The party must be open to all employees and consist of a majority of employees. If you have a number of branches (unlikely for the typical contractor), you are able to hold a Christmas party which is separate to the other ones
  3. The exemption can be used on several events, providing that the total costs for all events is under £150. The only necessity is that it is a recurring event, for example, a Christmas party, an Autumn Ball
  4. The primary purpose of the event is to entertain staff
  5. If attending shareholders are not employees or directors, you won’t be able to claim this as part of the exemption
  6. Ensure that all bills and receipts are made out in your company name.

The expert was David Tattersall of Handpicked Accountants, which connects businesses with local accountants.

Thursday 18th Oct 2018
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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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