Knowing what expenses you can and can’t claim can be confusing at the best of times, let alone around December when the party and present season kicks in.
Expenses are classified as purchases that relate to your business. As a general rule, expenses have to be claimed for purchases that are “wholly and exclusively” for your company – so no jacuzzi buying unless you’re in the hot tub business.
Claiming expenses lowers the amount of profits you pay tax on, whether that’s whilst completing your Self Assessment as a sole trader, or reducing the amount of Corporation Tax you pay as a limited company.
During the holiday season in December you may want to treat your workforce to some festive cheer. As the director of your business, an option is to put on a Christmas party for your employees. HMRC allow for businesses to throw an annual event (some choose a summer BBQ instead of a festive shindig, or both!) and claim this back as expenses.
The amount you can claim is up to £150 per head providing the occasion meets certain conditions as outlined by HMRC. The £150 can be spent on food, booze, travel or accommodation. So, if your business is a two-person band consisting of you and another director, you could take yourself out for a swanky meal and claim the costs back against your profits, therefore potentially increasing your take home pay. Sounds pretty good, right?
It’s worth noting that the final amount for each head has to be £150, and no more. There isn’t an option to spend £200 per head and claim back £150 – it’s the full amount (or less) or nothing at all.
If a Christmas party isn’t your business’ idea of a good time, perhaps you’re in a position to gift employees instead. Gifts and perks are known as benefits in kind.
If you’re giving cash as a bonus this year, you’ll need to add this to the employee’s annual salary and deduct both tax and National Insurance contributions. If you’re giving large gifts and presents to employees – a car or crate of champagne for example – the same rule applies. However, if the employee earns under £8,500 and the gift can’t be resold for cash, you don’t have to declare this to HMRC.
HMRC deems smaller gifts such as a bottle of wine or a box of chocolates as ‘trivial’, as long as they are given in recognition of a particular event. These wouldn’t have to be run through payroll and be taxed.
However you and your team decide to celebrate this December everyone can do with a little bit of extra cash in their back pocket come January. Why not get a head start and begin to think about actively (and legally) lowering the amount of tax you pay?
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