As the nights grow cold and dark, thoughts naturally turn to celebrating the end of another year. With hard work (and a little luck), you will have plenty to be proud of and find your business in an even better position than 2017.
It may now be time to take advantage of an often-missed quirk of employment legislation: the annual staff entertainment exemption.
As a general principle, any spending on staff entertainment is an allowable business expense. As you will know, client entertainment is not allowable, but there are no restrictions on treating your staff (or yourself) – except that this would be classed as a benefit in kind.
A benefit in kind is anything paid to, or on behalf of, your employees outside of their wages. These items still need to be taxed, so unless there are some exemptions in place it is not normally worth offering these items, especially as we will aim to make your salary and dividends as tax efficient as possible.
One such exemption is for annual parties and other social functions. As long as it is available to all employees, you can spend up to £150 per head for a Christmas party, or summer barbeque or other such events.
When applied to contractors, our advice is this:
- You can hold an annual event, such as a meal, for yourself and any guests
- As long as the total cost to your company is no more than £150 per person, including any travel or accommodation
- If you hold more than one event each year, the combined cost needs to be less than £150 per head, i.e. you could have a summer BBQ costing £50 per person, and also a Christmas meal costing £100 per person
- The costs will include VAT (which will also be reclaimable by your business)
- Please be aware that the £150 is an exemption, not an allowance. If you spend £280 for you and your partner, that is all you can claim
- On the other hand, if the cost is more than £150 per head, then the entire cost becomes a taxable benefit on the employees who attend. If you spend £400 on a meal for two, then you personally are taxed as if you had received an extra £400 in salary
- As with any other business expense, you should retain your receipts!
The event is supposed to be annual, so you should only do this if you intend to repeat the event each year.
Since this is an exemption, as long as you follow the guidelines, then this is another way to extract profit from your company without paying any tax or National Insurance. A welcome present from the taxman!