The festive season is almost here and it’s time for employees to get rewarded for their hard work. Corporate events, such as Christmas parties have quite the reputation because of the amount a company spends on its employees.
HMRC has allowed businesses to reward their employees on annual events, such as Christmas parties and that too without paying any taxes. As a business owner, you are allowed to claim up to £150 per employee. But if you go above the £150 limit, there is no benefit of taking the allowances, so you have to spend the allowance carefully.
Christmas allowances can include food, drink, and even transport and hotel stay. It may be the season of goodwill, but that doesn’t mean the taxman will not chip in his share towards the festive season.
An office Christmas party can cost you a lot more than you think, as people often book luxury hotel or venue for the party. As long as the food and drinks bill is less than £150, it is sorted. But if the total amount exceeds £150, you have to pay some extra tax.
What Happens If The Cost Exceeds The £150 Limit?
Generally, the allowances limit is £150, but it goes up to £150 then it can cost your company 90% more than each employee who pays tax at a rate of 40%. For example, if you spend £200 on each employee, you don’t just pay the extra £50. The total amount will be £50 plus 90% of £200.
In addition, the cost which exceeds the £150 limit also includes VAT on the drinks, transport, and accommodation and it can cost your company around £380.
So how can you make the most of your Christmas party allowances?
Tips To Make The Most Of Christmas Party Allowances
A Christmas party does not necessarily have to constitute a party; it could also take the form of a meal or stopover in a nice hotel. For employers, sometimes it is hard to know in advance what the total cost per head will be for t Christmas party. However, there are many ways to make the most of it and save tax on Christmas party allowances.
Below, we have mentioned some tips to keep HMRC happy when it comes to Christmas parties.
- The restaurant/hotel/banquet should be booked in the company’s name if there’s a sign of exceeding the £150 limit. The director should be authorised to pay the bill personally and claim back only £150 per head from the company.
- Track expenses of employees for the event as this could tip the scales and put you over the limit.
- Invite all employees and claim under £150 allowance. It’s a no-no under the tax rule.
- Don’t forget that there is a £50 limit on employee gift allowances per year as well. So giving a nice bottle of wine to the high-performing individuals is fine.
- Try to spend less than £150 tax-free allowance permitted by HMRC for staff events each year.
Even if you are running a one-person limited company, you can still claim the allowances that Christmas brings to the door! One of the easiest ways to save tax at Christmas parties is to show HMRC that you have a policy and can apply it consistently. At Northants Accounting, our knowledgeable accountants can help manage your employee’s Christmas allowances and making it easier for you.
Feel free to contact us with any queries you may have regarding the Christmas allowances, and we will ensure that you have a merry Christmas indeed!
Tel: 01604 330129 Email: firstname.lastname@example.org