Criteria for dentists to claim for a tax-deductible party?
- This tax relief does not apply to self-employed associate dentists operating as sole traders or partnerships without employees.
- This tax relief can apply to associate dentists with company directors’ secretaries who are considered employees.
- This tax relief can apply to practice owners operating as sole traders or partnership companies with employees.
With some simple tax planning, it’s easy to incorporate an annual staff event into tax-deductible spending to benefit yourself. You can invite other guests too, including your family, but it must be for the benefit of the staff/employees, not a personal event, e.g. your birthday.
The tip is there must be a party or function. Purchasing a flight or hotel room cannot be a party or function. Remember to watch out for excessive travel guests and expenditures, as shown in the examples below.
Your company can pay up to £150 per person tax-free for the event(s) each tax year, with any incidental travel and accommodation costs. You can recover your expenses from the company if you have paid them personally.
If you expect to go over the £150 costs per head for an event or events, look for ways to reduce your expenditure. If the tax-free status is lost, the national insurance costs of a ‘taxable’ event and the additional accountant’s fees to report a taxable benefit will make it more expensive overall than if you had paid for the event yourself.
The following must apply to qualify as tax-free:
- Invites are sent to all the company’s employees. Note the directors and Company Secretary are employees.
- While you can invite other people, the event must be for the benefit of the employees.
- Whilst there is no legislation on the number or % of guests attending a works event, we suggest a +1 rule is adopted to be with the spirit of the allowance.
- Maximum tax-free spend of £150 per person per tax year from 6th April to 5th April.
- You can have more than one annual event, but the £150 per person has to cover all events they attend
- To work out costs per head, you add all costs, e.g. venue hire, tickets, food and drinks, entertainment, prizes, travel, accommodation, etc., and divide by the total number of people attending, including the guests.
- You need sufficient records for HMRC. Record the names of all people attending each event.
- It’s an annual event, so you must have it every year. e.g. Christmas, Pride, Ramadan, Easter, Summer
For your company
The costs of the event are tax-deductible in the company accounts. There is a clause in the legislation that disallows any tax deduction if the event isn’t provided for the main benefit of the employee(s), as shown in example 5.
The total costs of the event are allowed even if you spend over £150 per person, but the tax-free status is lost. When the tax-free status is lost, the event must be reported to HMRC as a taxable benefit. Taxable benefits are earnings. You will pay income tax, and the company pays National insurance.
To help track the costs of events, it helps to allocate all expenses to an itemised ‘annual staff event’ in the company accounts.
Provided you do not exceed the £150 limit. You have no tax or national insurance cost.
The £150 is not an allowance. If you spend £151, it’s the £151, not £1, together with the total costs per head of any family members and household who have attended as guests, which is taxable as a benefit in kind.
Example 1 – Tax-free annual party with children
Davina is an associate dentist and company director of her own company. Her husband is the Company Secretary, and they have two children. They spent £520 (£130 each for four people) on food and drinks at a restaurant for their company Christmas party. The restaurant has a special offer of £20 per person (£80 for four people) to stay the night of a Christmas party in their hotel. The company can pay the total tax-free and claim a tax deduction as the total is within the £150 annual allowance.
Example 2 – £150 per person exceeded
Darren is an associate dentist and a director of his own company. He and his wife spend £350 (an average of £175 each for two people) on food, drinks and a spar experience for an annual party to celebrate the company’s formation. The company can claim a tax deduction. Because he exceeded the £150 per head, he has a taxable benefit on the total of £350.
Example 3 – Two tax-free annual functions
Dean and Debbie are married associate dentists and directors of their own company. They went out for an evening boat trip together in July for the annual company summer function, costing £100. The annual company Christmas function is a theatre trip costing £120 in December. The total spent is £220. They do summer and Christmas functions every year. They spent £110 per person. The company can pay the total tax-free and claim a tax deduction as the total is within the £150 annual allowance.
Example 4 – Annual party where the travel cost is not incidental
Dan is an associate dentist and a director of his own company. He goes skiing every year and pays £140 for flights and £10 for food at a cafe at a ski resort for his company winter party. The company can claim a tax deduction. The travelling cost isn’t considered incidental to the party and does not qualify tax-free. He has a taxable benefit on the total cost of £140.
Example 5 – Annual party with an excessive number of guests
Dianna is an associate dentist and a director of her own company. She arranges a BBQ, marquee, and drinks for her company’s annual summer party in her garden. The party cost £2,000. Twenty people attend (£100 per person): four family members, five friends and five dental associates with their guests. She is the only director in her company with no employees. The party mainly benefited the nineteen non-company employees who attended. There is no tax deduction for the company. She has a taxable benefit on the cost of £2,000 for non-business entertainment.
Example 6 – Costs without a party or function
Dereck is an associate dentist and a director of his own company. For an annual event, the company provides no function or party and pays £250 for him and a friend for a weekend’s accommodation at a hotel. The company cannot claim a tax deduction, and he has a taxable benefit of £250 as he provided no party or function.
Example 7 – One tax-free one taxable annual functions
David and Donna are married associate dentists and directors of their own company. They went go-karting together in July for the annual company summer function costing £100. In December, the annual company Christmas function is a ball costing £300. The total spent is £400. They do summer and Christmas functions every year. They spent £400 per person. The company can claim a tax deduction for both parties. The more expensive ball is tax-free and within the £150 annual allowance. The less expensive go-karting is a £50 taxable benefit to David and Donna.
Example 8 – Annual party not provided for the benefit of the employees
Dajra is an associate dentist and a director of her company, with her husband as the company secretary. At their children’s request, they take their two children on a Christmas Polar Express and to a family restaurant afterwards. The total cost of the Polar Express is £100, and the restaurant £50. The Polar Express was provided as a benefit to the employees’ children, not the employees and is a taxable benefit to Dajra and her husband. The meal at the restaurant could be a tax-free annual party if Dajra and her husband choose it rather than their children.
- Income Tax (Earnings and Pensions) Act 2003 Section 264 Annual parties and functions.
- Income Tax (Trading and Other Income) Act 2005 Section 46 Business entertainment: exceptions – shows a tax relief restriction if entertainment isn’t mainly for the benefit of the employees.