Can Micro-Companies Organise Christmas Parties Tax Free?
It’s not just large firms that can benefit, it’s possible for one-person limited companies to benefit from this tax relief.
Most companies that have a staff count of over 5 probably organised their 2016 Christmas party months ago. To make sure that their staff won’t receive a BiK (Benefit in Kind) tax bill, they will have kept the cost within HMRC’s £150 exemption. However for micro-companies, this probably wasn’t the case. Micro-companies with only one or two staff (including directors) might be wondering if they can go for a meal with their partner and still benefit from this tax exemption.
What the law says
The legislation defines fairly clearly who exactly can claim this tax exemption. Section 264 of the Income Tax (Earnings and Pensions) Act states, “Where in the tax year only one annual party or similar annual function to which this section applies is provided for the employer’s employees, no liability to income tax arises in respect of its provision if the cost per head of the party or function does not exceed £150.” Although there are a couple of extra conditions, there’s no cap on the size of the business, meaning the exemption applies for one person limited companies. You can also include guests in the tax exemption, so your spouse/partner can tag along without paying tax or National Insurance.
Company tax deduction
When it comes to CT (Corporation Tax), it doesn’t matter whether or not the Christmas Party is a taxable BiK as it can claim a deduction for the cost either way. However don’t jump the gun and expect a financial advantage. In order to make this tax break, you must maximise the BiK exemption.
Sapphire Tip: Spend whatever you like within the £150 budget, but by going £0.01 over you’ll be taxed the full amount along with a NI charge.
Naturally you’ll be eager to maximise the annual party tax and NI exemption but it’s not always that simple to keep track of your budget on the night. For example, if you forgot to account for the end of the night “Sambucas”, you might go over your budget by £5 which would rack up a hefty Tax and NI bill. However there’s a simple way to escape this trap.
Sapphire Tip: Always book the venue in the company’s name and should the £150 budget be exceeded, the director should personally pay the bill and claim back only up to £150 per head from the company, with receipts to prove the costs. This is a great way to make sure the company stays within the tax exemption.