Christmas allowance for UK freelancers and contractors – what’s that all about, Kenny?

Forgive us for doing this to you so early in the year. It’s barely October and we’re already wafting the mistletoe around (believe us – it’s all we could do to keep Kenny from donning his Santa beard). But it’s always worth planning ahead, isn’t it? And when there’s a nice bit of tax-friendly Christmas cheer to be had, well you might as well get stuck right in.

We caught up with that ever-jolly festive elf, Kenny Fitzgerald (My Accountant Friend), to find out which Christmas allowance myths are bah, which are humbug, and which are ding dong merrily on high.

Merry Christmas, Kenny!

Erm, yeah…

Not in the festive mood yet, eh? What time of year can ‘Christmas’ begin for freelancers and contractors? When can the Christmas allowance be put to good use?

Actually, the ‘Christmas allowance’ name is something of a misnomer, as you can put it to use anytime throughout the company year – it doesn’t have to be saved for Christmas at all. It can even be split across multiple events, so long as the annual allowance is not exceeded overall.

What is the limit, Kenny? How much can you spend before you turn into a pumpkin? (That is how it works, right?)

Yes. A pumpkin. That’s exactly how it works. The allowance is £150 per head, per year. So if it was an employee plus a guest, that would be £150 each – £300 in total – so that would be absolutely fine. If more than one employee each takes a guest, so – for example – two employees and two guests, that would be £600, and so on. All fine. The limit is simply £150 per head. Of course, you need to have the money to begin with. This isn’t just a kindly HMRC Christmas handout!

Good to clear that up. Is the Christmas allowance just for parties and client wining-and-dining, or can I buy gifts, too?

No, you can’t buy gifts, but tickets to events – the theatre, a gig, a restaurant – all that would be fine.

How about gifts for myself? That iPhone X looks pretty sweet…

You might need to clean your ears out. I said no gifts! That said, however, you could still put the new iPhone X through your company accounts, as your company is allowed to provide all staff with a phone without incurring a ‘benefit in kind’, but all of that is definitely not to do with the Christmas allowance, and probably something for a different article [check back next week!]

What are the downsides if you choose not to use your Christmas allowance? Does it raise suspicion?

There are no downsides other than missing out on some tax-free knees-ups each year. Remember that VAT can be reclaimed as well as a corporate tax savings…

Hmmm. I’m not great with numbers. Can you explain what you’ve just said? 

Feel free to give us a call. We’re always happy to talk things through in more detail.

Have you ever dealt with a client who took the Christmas allowance to silly levels? What did they splash out on?

I remember having some odd questions from a client about taking their family to Disneyland for a trip. To be fair to them, they got a deal where kids went free and it came to under £300 to get there, so – amazingly – it was ok!

How on earth does that work? Isn’t that just going on holiday? Doesn’t HMRC have something to say about that?

Disneyland Paris, obviously. It wasn’t Florida! But no, the annual party allowance can be used for anything you wish, experience-wise, so long as the thresholds are not breached. It could be a trip abroad if you wish.

Anything they ate or bought while they were there was paid for personally, but the initial travel and overnight accommodation was paid for as the ‘Christmas allowance’, and at the time it was less than £300. Since the kids went free, it was all above board, so to speak.

How seriously does HMRC take this? Have you heard of investigations into misuse of the Christmas allowance?

Personally, I haven’t heard of anything of this sort, but that doesn’t mean that it hasn’t happened. I think it is more likely to be caught within a general VAT or corporation tax investigation undertaken by HMRC, as opposed to targeting this allowance in isolation.

How do I file my Christmas allowance info? Presumably paper receipts are required?

There’s nothing unusual or exceptional here. It’s the same as it is for any other expense receipts – they simply have to be kept safe. After that, a good online accountant might help. I wonder where you could find one of them?

What might attract suspicion from HMRC around my Christmas allowance?

As I said before, it’s hard to say as I don’t think it’d be looked at in isolation. It’s always good to make sure your VAT and corporation tax info is up to date and looking good. I believe we published an article about that last week here.

If you’d like to chat about your own accounting situation, My Accountant Friend is for life, not just for Christmas! Drop us a line anytime you like.

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