What it is: HMRC allows companies to spend £150 per employee, per year on an annual event without creating any additional tax or national insurance costs
Approximate tax saved: This could save you a total of approximately £132.65 of tax. Actual tax savings will vary depending on your individual circumstances, so we've included an example at the bottom of this blog.
HMRC reference: https://www.gov.uk/expenses-benefits-social-functions-parties
Want to have a party and write it off through the business? Well, good news, you can!
HMRC allows companies to spend £150 per employee, per year on an annual event without creating any additional tax or national insurance costs
This tax exemption applies for every size of company. So if you are a single director company, then your total exemption is £150 inclusive of VAT. If you have an employee in your company, you would have £300 (i.e. £150 per person) and so on.
That means, even if you’re the only director and employee of your one-person company, you can still throw yourself an annual party and write off the cost through the business to save tax.
Sounds good right? Let’s check out the rules!
There are 4 key rules to be aware of:
1: The £150 exemption covers all reasonable expenses related to the event.
This includes direct costs of the event such as food and drink, and the indirect costs like transport and overnight accommodation (e.g. taxis and hotels).
2: According to the HMRC Employment Income Manual, EIM21690, this exemption is for an annual event that is made available to all employees. If you’re a one-person company, this is fine.
3: It must be an annual event that is primarily for entertaining staff. For example, it could be a Christmas party or a summer BBQ, or both as the £150 annual exemption can be used across the year.
4: The total cost of the annual events must not exceed £150 per person - including VAT.
This is key. If the total cost does exceed £150 per head, you cannot claim the exemption. That means if you spend £150.01, this cannot be claimed under this exemption. As an example, if you had two events, one that cost £90 per head and the next one that cost £70, as the total costs would be £160, the £70 event would not be covered by this exemption.
A practical tip here: if you foresee the bill exceeding £150, once the bill hits £150, ask for the receipt and pay it. Beyond this, pay for everything else personally on a separate card. This will keep your exemption intact and prevent any nasty benefit in kind charges arising.
1. Can you bring your partner or a friend?
Yes. As long as the total you spend does not exceed £150 you’re welcome to bring your partner or friend to your party.
The exemption doesn’t double as they’re not an employee or director, but they can attend the event without affecting the exemption.
2. What constitutes an allowable event?
A Christmas party is the exemption’s most common use case, but technically it’s an annual event exemption. That’s sufficiently vague to mean virtually anything you want it to - as long as you do it annually.
For example, this could include a full on party or in the case of many solo company directors, taking yourself and your partner out for a meal.
Of course, the actual tax saving will vary dependent on your circumstances, but for this example let's look at the potential tax savings of a £150 (VAT-inclusive) event. We'll assume you are a higher rate personal taxpayer and your business is VAT-registered and paying the 25% rate of Corporation Tax.
Corporation tax & VAT:
Your business will receive corporation tax relief and VAT relief on this expense - if you’re VAT registered.
If the event itself has VAT on it, it would be £125 + VAT and have £25 VAT to reclaim, providing you're not on the Flat Rate scheme for VAT. The £125 net amount will also reduce the company's taxable profits and save corporation tax of £31.25 (i.e. £125 x 25%). In total, this means a company tax saving of £56.25 and makes the £150 annual event a net cost to the business of £93.75.
Personal income tax:
In addition, if you’re a higher rate dividend tax payer, this exemption will effectively save you £76.40 of income tax vs if you needed to withdraw dividends to pay for the £150 event personally.
This is because, at 33.75% income tax on dividends, you would have to issue a further £226.40, paying £76.40 of tax, leaving you with £150 post income tax.
Total tax savings
Adding the two together, that’s a total tax saving of £132.65, on a £150 event. Not bad right?!
.svg){kind=icon}
