If you’re currently in the middle of arranging your annual Christmas party you’re encouraged to stop for just one moment as we give you a quick reminder of the tax rules and exemptions surrounding annual events as a small to medium-sized business (SME) owner.
For a conclusive guide on the tax implications of providing employees or customers with a Christmas bonus or present, be sure to read this short article we wrote last December.
Defining an Annual Event
As obvious as it sounds, you’ll only be able to claim allowable expenses on an annual event if it truly is an annual event; such as a Christmas party or a summer picnic.
You can’t decide to have an evening out with a couple of your employees at the last moment and claim for it on your allowable expenses. Should HMRC choose to question you on it, there’s little chance they’d believe it to be an acceptable use of your allowance.
Annual Event Tax Exemption
You receive an annual event tax exemption of £150 per employee, per year.
You can choose to benefit from these exceptions all in one go (the most common example being via an annual Christmas party), or you can spread these exceptions out over a number of events throughout the year.
For your tax exemptions to be valid your annual events must be open to all staff members (regardless of the size of your company) and, should you wish to invite your spouse, your employees must be made aware that they’re also allowed to invite their partner.
Invited spouses and partners also receive the £150 per head tax exemption; though you’d do well to keep a constant eye on your spending, as should the cost of your annual events over a year-long period go above £150 per head (inc. VAT) the entire cost of your annual events will be taxable as a benefit in kind.
Business entertaining doesn’t receive its own tax exemption (even during the festive season), therefore if you pay corporation tax you cannot claim for business entertaining expenses against the taxable profits of your SME.
With that said, you can claim business entertaining expenses as standard business expenses provided they are reasonable and justifiable given what they were used for.
For example; spending £200 for four tickets to the theatre for you, a potential client, and your spouses, could be seen as a reasonable business entertaining expense if doing so means you land a much sought-after £10,000 contract with their company.
If, however, you spend that same amount of money while knowing full-well that there’s only £500 worth of work on the table, HMRC may see this as a personal benefit to you (you’re using money you would have otherwise paid in tax) and tax you on the full amount.
Professional Advice on Tax Rules for Annual Events
To speak with an experienced professional to discuss annual event tax exemptions, or for a personalised look at your business entertaining expenses, contact us today on 020 7129 1199 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.