Contractors’ Questions: Will a Michelin takeaway count as my company's £150 Christmas party?

Contractor’s Question: Can the £150 Christmas party allowance (which is so far this year unused by my limited company) be spent on a high-end ‘dine at home’ package from a Michelin-starred chef?

As covid-19 restrictions won’t likely ease before April, when the tax-year ends, I’m thinking of such an extravagant food package for both myself and my spouse and my company secretary and his spouse. Please note, she does not work for my company, nor does my company secretary’s spouse of course, and he only does the company’s tax preparation, administration and company filing duties.

We plan to have the four meals (four courses each), over Zoom and eat and drink together, virtually. Would HMRC likely accept this as acceptable use of the £150 ‘party’ allowance, or should we instead partake in a virtual cocktail-making course? It involves home-delivered alcohol; a mixologist on Skype and our own glasses/mixers.

As the course is only £30 per person, and there would just about be enough money left over from the dinner package, could both offerings – the chef’s food and the drinks course – for no more than £150 per person, be allowable in HMRC’s eyes or would it be very open to challenge? Lastly, would we have to repeat both events next year to qualify for HMRC’s condition that the £150 allowance is to cover an ‘annual/regular’ event?

Expert’s Answer: You’ll be pleased to know that the short answer to your question is – ‘yes, with all of the usual caveats.’

What the HMRC rules say

First, let’s consider the pertinent rules. The ‘Christmas Party’ rules are not specific to Christmas, but rather they are a concession (not an allowance), allowing hospitality-type spending of up to £150 per attendee (including VAT) by an employee’s company, per year. 

To qualify, the spending must be on events and activities of a kind of ‘annual character’ – but this does not mean only one per year. If for example a Christmas party, and a summer gathering are customary, then the costs for both might be included, depending on the totals involved.

In your scenario, the important aspects are that the contractor is a director, and there is also a company secretary, whose responsibilities are limited, but who does carry out the duties of that role. Both individuals therefore appear to be officers of the company, and therefore are assumed to be employees. As such, spouses or partners could be invited as well provided that offer is open to all persons (or in your situation, both persons). Each of the four attendees could therefore benefit from a concession of £150, totalling £600.

Pushing the limits?

But why does this situation you outline feel like it’s pushing the limits?  You have a natural concern that HMRC make take a dim view of the arrangements because they are not necessarily part of established practice. You therefore wonder  --  would they qualify as ‘annual’ events?

Well, we should not forget how this concession operates – an annual amount per attendee for events for the benefit of employees, which does not need to be declared as a taxable benefit. If the amount qualifying in a ‘normal’ year would be £600, then that amount should apply this year too – HMRC aren’t worse off just because you’ve managed to secure a Michelin-starred chef and a mixologist for that price!  

Right now is not 'business as usual'

In my opinion it would be wholly unreasonable for HMRC to disapply the concession just because the usual practice wasn’t (or indeed this year due to covid-19 restrictions) couldn’t be followed. So, whatever combination of services you are able to secure, subject to the usual requirements should be HMRC- acceptable this year. The reality is that because of the ongoing coronavirus pandemic, very few people -- including company directors -- are living their lives and running their businesses ‘as usual’ right now. 

Finally, it would be sensible to keep a record of the decision you’ve made to replace your usual annual celebration with this activity this year, for completeness – although that is clearly your intention already. Enjoy your fancy food and delectable drinks!  

The expert was Chris James, director of accounting services at contractor accountancy firm JSA Services.

Monday 25th Jan 2021
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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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