Updated: October 2023
Question Submission Date: December 2021
Full Question: “I’d like to make sure I’m using my full allowances – as a Contractor, am I able to throw a Christmas party?”
Whether you like it or not… it’s that time of year! And one of the things all contractors want to know is where they stand with the Christmas party from a financial point of view.
It’s often considered THE annual event, and contractors are indeed provided an annual allowance so that you can host or contribute to a party or gathering. Here we’ll explain what the allowance is and how it works. After all, knowing that you can claim tax relief on your Christmas party might increase your feelings of good will!
This information applies to contractors with a limited company, not sole traders.
Does it count as a company expense?
Yes, the cost of a Christmas party can be recorded as a company expense.
How does that benefit me?
It means that it will (albeit slightly) decrease the amount of corporation tax that you pay at the end of your tax year. The amount you spend on the party will also be exempt from national insurance and tax.
How much can I spend?
No more than £150 per person, including any VAT. You can claim back for more than one ‘function’ as long as the total through the year doesn’t exceed that £150. Be careful not to exceed this limit as it will mean that the entire claim will be subject to national insurance and income tax.
What about inviting partners?
An additional £150 can be claimed for employee’s partners – as long as they are a partner or family member.
Who can I invite?
You must invite ALL company staff. However, shareholders who are not either staff or directors will not be included in the exemption.
What if my team work remotely, and we can’t get together?
Working from home has changed things and you may consider a ‘virtual’ event. As long as you still meet all the conditions listed above, that’s fine.
Can I reclaim VAT on the Christmas party?
As long as your staff are attending then yes, you can, and obviously keep the receipt! If it is just the directors and their partners then no, you can’t reclaim the VAT.
What if I don’t want a Christmas party?
If you feel this specific allowance is not needed for a Christmas Party, HMRC are now deeming this an ‘annual event’ meaning you can claim this against another gathering, again as long as it fits the above criteria.
The end of the year is always a good time let your hair down, particularly now you know it will have a benefit on your corporation tax!