If you run your own business you can deduct expenses from your business turnover to reduce your taxable profits. But what about Christmas parties, social functions and gifts for employees? If you run a limited company this is a little-known tax benefit that could be very useful for your small business.
Whether you want to throw a party for your employees at Christmas or give them some flowers to celebrate a recent wedding, there are a couple of schemes provided by HMRC to simplify the whole process. As per usual please do you own homework but this is certainly something worth chatting to your accountant about. Unfortunately if you’re self employed most of this is only relevant to limited company owners. However for some aspects, such as trivial benefits, the rules are less clear.
Christmas parties
There are no allowances for social functions if you’re self employed. However if you have your own limited company you may be able to make use of an annual exemption of £150 per head for Christmas parties etc. This shouldn’t be regarded as an allowance as such, it more of an exemption.
To be exempt the social function needs to be:
- open to all employees
- annual
- less that £150 per head
You can have multiple events, such as a Christmas party and an annual summer barbecue, but the total spend must not exceed £150 per head.
For clarification there’s more information here from HMRC and also some additional technical guidance here. And it doesn’t end there! There are also exemptions for trivial benefits.
I’ve heard of a ‘trivial expense allowance’ – can I make use of that?
Again this isn’t an allowance as such – it’s an exemption. HMRC have an exemption for tax on trivial benefits of £50 or less. This is a tricky one since, again, it’s really designed for employees of your business. According to HMRC you don’t have to pay tax on a benefit for your employee if all of the following apply:
- it isn’t in the terms of their contract
- it cost you £50 or less to provide
- it isn’t cash or a cash voucher
- it isn’t a reward for their work or performance
It’s really designed for occasional ad-hoc gifts for employees. Remember it can’t be a reward to celebrate performance – that would be taxable. Think new babies, marriages and generally major life events.
At the time of writing I haven’t found anything that says this only applies to limited companies but it does specifically mention ’employees’ and sole traders aren’t technically employees. Although your staff would be… probably. So pick your battles.
Are there limits for company directors?
Directors of close limited companies are limited to a total of £300 of trivial benefits per year. This is in addition to the £150 exemption for annual social functions mentioned above. It’s not entirely clear on the HMRC website whether the £300 figure is per director. According to this page on the HMRC web site “the £300 limit is per individual and per employer” which doesn’t really make sense. The employer would be the company. Anyway apparently it is per director but please double check with your accountant. HMRC provide a bunch of examples here and here’s a screenshot in case they change their minds:
Theoretically that gives an extra £450 per director of non-taxable benefits that can be claimed through the business. AND according to this guidance this can potentially be extended to:
- a spouse (or civil partner)
- children and their spouses (or civil partner)
- parents
- domestic staff, dependants and guests
That theoretically gives an almost unlimited list of £300 exemptions 🤔 (maximum £50 per benefit). Can these costs also be off-set against Corporation Tax? Probably! As per usual, always double check with your accountant but it’s certainly a topic worthy of some additional research.
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