The office Christmas party is a great time to let your hair down and mingle with colleagues you have only ever exchanged small talk with at the office printer. It is also synonymous with embarrassing dancing and next morning fuzzy heads. Reclaiming tax on your office Christmas party is one way smart employers, employees and contractors working through an umbrella company are nursing this post-party pain. Be tax-break savvy and know when and how to claim exemption from certain work events.
HM Revenue & Customs have various rules and guidelines on tax breaks for events such as the office Christmas party. According to the HMRC, there is an exemption from tax, NICs and reporting if the social function which an employer holds for their employees comes under certain criteria.
Firstly, it must be an annual event such as a Christmas party or a summer BBQ. Secondly, the event must be open to all employees. ‘Open’ includes parties arranged at different branch locations and also includes those organised by different work departments within one company. Each employee should be invited to attend at least one of the events. If, for example, a party is thrown solely for directors and executives, then no tax breaks are given. Thirdly, the cost-per-head of the event should not exceed £150. This figure, which has increased since 5 April 2003 where it once stood at £75 per head, includes VAT and any related costs such as transport and accommodation.
Some party-animal companies which offer their staff more than one annual party can do so (although where are they and why aren’t we working for them?). However, if the total of the combined parties exceed the £150 costs-per-head threshold then employees will not be exempt from tax and NICs. If you are invited to more than one event, make sure you do not breach the £150 per-head allowance, or if you do, be prepared that you will have to pay all tax and NICs on those parties. The financially aware social butterfly might have to be selective about the parties they want to attend!
As a permanent employee of a company, the company will arrange this tax break for you. But if you are a contractor it is up to you to reclaim those important extra pounds in the run up to Christmas. Working as a contractor under an umbrella company allows you to shift the hassle of working out your Christmas party tax-breaks onto your umbrella frim. Different regulations apply to contractors, especially if you plan to attend more than one annual event and the total cost exceeds the £150 threshold. Your umbrella company can advise you on which party is best to claim a tax-break on. Let an umbrella company do this for you by correctly filling out the right forms on your behalf, giving you more time to wrap up those presents.