Q:I am the sole director of my own limited company, is it straightforward from an accounting standpoint to fund a small Christmas Party? I would like at least myself and my wife to attend the party, which would ideally be eligible for tax relief. Any guidance would be appreciated.
Answer As a sole director of the Company A contractor and his family members can claim the exemption on the expense of upto £150 per employee or director. The limit of £150 is including VAT so its total bill of £150. Please note this is exemption and not an allowance meaning you cannot claim round sum allowance flat £150. You can claim exemption of upto £150 per employee or director in relation to annual function or parties like Christmas or New function. The limit of £150 per employee or director can be claimed in relation to 2 or more functions as long as cost does not exceed £150 per head.
If you are the sole director and employee and if your wife is not an employee you can only claim for both of you £150 maximum. To claim exemption you must be employee or director of the company. If your wife is an employee she can claim additional £150 as well. Together you can claim £300.
So if you spend £130 on Christmas dinner or New year Party you can only claim £130 as expense and not £150 Flat.
The amount of £150 per head includes VAT, cost of transport and any accommodation if any provided so please watch out. In case you cross the threshold of £150 pity is that you cannot claim even a penny as exemption. Once threshold is crossed employee would be taxable on full amount. To avoid this problem you can reimburse any excess over £150 and claim the balance as exempt expense.
Example 1 - John went out with his wife for Annual Christmas Dinner and spend £130. His Wife is not an employee so total they can claim maximum is £150. In this case John can claim full £130 as exempt expense and no tax payable.
Example 2 - John went out with his wife for Annual Christmas Dinner and spend £180. His Wife is not an employee so total they can claim maximum is £150. Company has not requested reimbursement In this case John cannot claim any expense as the threshold of £150 is crossed. John will be liable to pay Tax and NIC on £180. Not a good outcome.
Example 3 - John went out with his wife for Annual Christmas Dinner and spend £180. His Wife is not an employee so total they can claim maximum is £150. Company has requested reimbursement of £30 towards Christmas Dinner. The net cost to company is £150 In this case John can claim expense £150 as exempt expense as the threshold of £150 is not crossed. John will not be liable to pay Tax and NIC. By paying £30 reimbursement John has saved Tax and NIC of £83 so its a good outcome.
In all the above cases if we consider Wife as director or employee both John and his wife can claim exemption. Total expense would be divided by 2 to arrive at average expense per head and if this is lower than £150 per head then this can be claimed as exempt expense. In all the 3 examples average expense would be less than £150 per head if John’s wife was an employee or director.