Annual Function Allowance of £150 Per head
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.
AnswerAs 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 employeeso 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.
Any questions? Schedule a call with one of our experts.
Whether you prefer to meet and speak over the internet, or if you prefer an in person conversation we can help you with your preference.
Stay up-to-date with the latest news affecting small businesses, get business tips and tax saving advice.