by | Nov 27, 2019 | Blog, Business Expenses Advice, Ltd Company

With Christmas fast approaching you may be starting to think about hosting a festive party or buying gifts for clients and associates.

It’s worth checking what you can claim as a business expense through your limited company as there are a number of rules you must abide by.

Christmas parties

You have an annual event allowance of £150 per head, so you can use this at any time, not just at Christmas.  The cost can be a deductible expense for corporation tax purposes as long as you follow these rules:

  1. The event must be open to all employees at a specific location.
  2. An annual Christmas party, or other annual event offered to staff, generally is not taxable on those attending, provided that the average cost per head of the functions does not exceed £150 p.a. (including VAT). The guests of staff attending are included in the head count when computing the cost per head attending.
  3. All costs must be considered, including the costs of transport to and from the event, accommodation provided, and VAT. The total cost of the event is divided by the number attending to find the average cost. If the limit is exceeded then individual members of staff will be taxable on their average cost, plus the cost for any guests they were permitted to bring.
  4. VAT input tax can be recovered on staff entertaining expenditure. If the guests of staff are also invited to the event, the input tax should be apportioned, as the VAT applicable to non-staff is not recoverable. However, if non-staff attendees pay a reasonable contribution to the event, all the VAT can be reclaimed and of course output tax should be accounted for on the amount of the contribution.

Entertaining clients

It’s not possible to claim tax relief on the entertainment of clients or associates such as suppliers.  Of course, you can still invite clients and associates to take part in your festive celebrations but you would need to separate the cost of doing so for accounting purposes.

Giving gifts

Small gifts can be given to employees and directors on a tax exempt basis as long as:

  • The cost to the limited company does not exceed £50 (including VAT).
  • The benefit is an actual gift, not cash or a voucher.

The gift must not form part of a benefit which is part of a contractual obligation, nor must it be in recognition of particular services performed by the employee as part of their job.

If you’re operating as a PSC, your business is classified as a ‘close company’ which means that tax-free trivial benefits provided by the company must not exceed a total of £300.

Record-keeping for festive expenses

We hope you enjoy the festive season and make the most of the tax allowances available to you.  Do remember to keep receipts for all expenses and record them correctly so that it’s clear in your records that you have followed the rules.

If you have any questions about any aspect of business expenses, gifting and hospitality, please get in touch on 01923 257 257.

JSA Group

Specialist outsourced accountancy and payroll services for recruitment agencies, freelancers, contractors and umbrella workers. We’ve built up expert knowledge and experience within the industry by supporting tens of thousands of customers for 30 years.

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