Christmas is coming, so time to look at the rules governing staff entertainment, and even a “one-man” business should continue reading on to the very end.
Firstly, the general rule. The cost of annual events up to a limit of £150 per employee is tax deductible. The most common annual event is the Xmas do, but can be applied to any event that is “annual”. The limit of £150 includes all expenditure including, room hire, food, drink, accommodation, and transport. Any number of events can be included, but as soon as the limit of £150 is exceeded then the whole cost of the event that causes this to happen is disallowable, as are all subsequent events. The event must be open to all employees of the business or recognisable department of the business.
Taking an extreme example, a (very generous) company:
- take their employees out each year to the local hostelry in May to celebrate the firm’s “birthday”. Cost £25 per head
- take their employees out in October to prepare them for the Xmas rush. Cost £35 per head
- hold a Xmas party in December at a local hotel, paying for the evening’s entertainment and an overnight stay for the staff members and their partners. Cost £95 per head
- hold a post Xmas revue party in February. Cost £15 per head
The total cost is £170 in the year. As this is more than £150, and the total exceeded the limit due to the Xmas party, the total allowable is a mere £60(ie the first two events) with the whole cost of the Xmas party and any subsequent events disallowed for tax.
So how does this apply to “one man” businesses (for “man” read “lady, for “him” read “her”, etc)? Provided all employees are invited then the expense is deductible. And each employee can bring a guest. Therefore:
- a sole trader who employs his partner within the business can spend up to £150 each year on entertaining his employee(s) and their partner, ie himself
- a director/shareholder of a one-man limited company can similarly treat himself and his partner
- there is no restriction on who an employee can invite as a guest. So if a director/shareholder of a one-man limited company also employs his spouse then they can both take a guest, ie the kids!
Go on! Treat yourself this Christmas and let the taxman pay 30%. Just remember, you must do it every year thereafter.
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