Can a limited company director pay for a company party?

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We know that contractors lead a busy WorkStyle, but that doesn’t mean you can’t let your hair down once in a while! After all, who doesn’t look forward to a Christmas company party?

But did you know that your limited company can cover the cost of hosting a party? Don’t worry, we’ll tell you how.

How does it work?

As long as your assignment falls outside IR35, your company can pay for a staff party, or even multiple parties across the year and benefit from corporation tax relief. Provided the event(s) meet the following criteria they will not be regarded as a taxable benefit:

  • The event is an annual event e.g. a Christmas party
  • The event must be open to all employees (this may be restricted to employees in a specific location).
  • The price does not exceed £150 per head

That last point is extremely important, as even if you go over this amount by a single penny, the entire amount would be regarded as a taxable benefit.

HMRC has confirmed for 2020 that virtual events will benefit from the same tax treatment, provided they meet the above criteria.

Can we bring guests?

IIn short, yes! You and your employees can bring a partner to any event to continue to benefit from the exemption all employees must be allowed to bring a partner. For example, let’s say your limited company has two people working at it (one being yourself) and you each bring a partner. You’d have a total allowance of £600.

Can I only have one party a year?

No, not at all! Your allowance can be spread across several events throughout the year. So, using the example above, you could spend £300 (inc VAT) on your Christmas party and the remaining £300 on a summer BBQ.

What can the company pay for?

When calculating the cost of the event you must use the VAT inclusive cost and should include the costs of any transport or any overnight accommodation that the business paid to allow employees to attend. You will need to take the total costs and divide by the number of attendees to arrive at the cost per head.

Be wary of inviting clients to this event. Client entertainment does not qualify for corporation tax relief and is treated differently in your accounts. Keep it to staff and their partners.

Oh, and make sure to keep your receipts too!

Get in touch

Hopefully, this guide will have helped shed some light on paying for staff parties through your limited company. If you’d like a bit more help, look no further.

At ClearSky Contractor Accounting, we’re with you all the way through your career, whether it’s with the fun stuff such as staff parties, or the not so fun things like tax. Our dedicated team of experts are on hand to answer any queries you may have, and our extended opening hours mean they’re available at a time to suit you.

For more information, please call 0800 032 5326 or email enquiry@clearskyaccounting.co.uk.