Reply to: XMAS party allowance

[DeadKenny]

Do all the simple things right; avoid IR35, pay both yourself and your spouse £97 pw salary and £2488 pcm divi (assuming the spouse has no income and you can afford to live on £6K pcm), accumulate the balance in the company and pay it out as a capital liquidation after 2 years. Pay for your childcare through the company and put your mobile in the company's name. Claim your travel and subsistence home to work (assuming it qualifies).

This will save £10,000's. Forget about £57.

And then sit back and await IR to clobber you for 6 years back tax when the rules change

[XLMonkey]

Provided that all staff in yourco are invited, it doesn't make a blind bit of difference who else is there.

[expat]

Personally, I wouldn't bother to try and save £57 (£300 @ 19%)....

Quite an assumption there. It's a little bit more than that if you don't pay dividends and do pay 40% income tax.

[Mustang]

Variation on a theme.....

To get back to the original topic.......!!

I am Director of MyCo and my OH is Secretary. By what's been said, I am the only one eligible since she doesn't get paid by MyCo. However, I am allowed to take a guest. Bottom line: I can claim £300.

Now if MyCo wants to join forces with another Co and have a combined Xmas party is it possible to contribute to a party with another Co? For example can I pay for something towards that party so long as I get a receipt and it is below £300?

[Waldorf]

I am an accountant!

Didn't know we had turf accountants on here! Sounds a bit of a gambler to me!

[THEPUMA]

I am an accountant!

There is no journal entry. It was moved from one company bank account to another.

[Robot]

Mortgage Stuff

THEPUMA - How does the company move the funds from the company bank account to your off-set mortgage account?

The entry in the company books would be as follows: -

Debit - DLA
Credit - Company bank account

This would create an overdrawn loan account which MAY be more than £5k and this would create a B I K and class 1a NIC payable.

If less than £5k you could still have section 419 tax to pay.

Or do you have a dodgy accountant that will allow you have an overdrawn loan account for 363 days of the year ???

Robot

[THEPUMA]

Both the points you make are fair. On balance I disagree with both of them but can see their merit.

HMRC's definition of a benefit here is guidance only. If you start to treat their guidance as gospel, you are in dangerous territory, especially where IR35 is concerned.

The legislation needs to enable us to quantify the benefit-in-kind. In some circumstances it is based on cost and in others there are specific sections of legislation telling us how to quantify the BIK. There is no definable cost here and the specific legislation concening beneficial loans should not apply, if the paper trail is in place.

Regarding the christmas party, in the event of an HMRC challenge, I would defend along the same lines as you have done. I can equally see the counter-argument that the expense has not been incurred for the purposes of the trade (as opposed to salary, which is remunerating the employee for work performed which has generated income).

My point is simply that it is not a case worth fighting and that it is not worth potentially drawing attention to yourself for the peanuts tax saving.

[XLMonkey]

Hmm... interesting, but, still think the logic is a bit flawed. In particular, I wasn't arguing about fairness - just about the way that the law and the guidance is written.

Let's take the Christmas Party issue first:
This is a benefit provided by the employer on behalf of the employee. Just like salary and any other benefit. Therefore, it is not subject to corporation tax. Just like salary and any other benefit. The fact that there is no explicit statement to this effect is irrelevant, since there is no dispute about whether a company funded party is a benefit to the employee: clearly, it is.

However, HMRC have stated that, although this is clearly a benefit, if it's less than £150/head it does not have to be declared as a benefit in kind, and does not result in a tax liability to the individual or a national insurance liability to the employer (EIM21690).

Now, let's take the issue of offsetting company funds against a personal debt like a mortgage. Does this qualify (whether the individual has direct control over the funds or not) as a benefit in kind?

A benefit in kind is everything that confers a special bounty of any description on the recipient (defined in EIM21002 on the HMRC website). Do you get a "special bounty" or benefit from having your mortgage offset by the company's money? You betcha.

Therefore, however arranged, an offset arrangement is a benefit in kind and thus, subject to tax.

Now, it's not that I want to be particularly "fair" or unfair about things - it's just that the way I read the guidance, it's pretty unambiguous. Therefore, in the absence of any legal precedent, I would expect the courts to side with HMRC if and when they make a test case of one of these arrangements.

[THEPUMA]

HMRC have made an explicit exemption that means that a Christmas party with a cost of £150 or less per person is not a benefit-in-kind. There is no specific statement to my knowledge that this is necessarily allowable for corporation tax purposes.

Of course it is in a "normal" company as the purpose is to generate goodwill within your workforce. But when the workforce and the shareholder are one and the same person, there is blatantly no business purpose.

Regarding mortgage offsetting, HMRC cannot simply apply tax because it is fair to do so. Indeed the "it's not fair argument" falls on deaf ears if applied the other way round. Equally the courts have no leeway to decide what is fair. They have to apply the legislation and if they cannot because the correct paper trail is in place, then that's tough.

So if the legislation allows us to do something, why not take advantage of it?

[XLMonkey]

hmmm - if I take out myself, my co sec (the wife) and another 148 people that means I can get my turnover tax free - So I'll pay for everything and they give me the cash

You can pay for everything from the company - that would be legit
If you then took the cash personally and didn't declare it - that would be fraud.

[XLMonkey]

I know that we're drifting off topic here, but I don't agree with you regarding offsetting company money against a personal debt.

It may be legal under company law, but the bottom line is that offsetting represents a benefit to the individual being provided by a corporation that is not for the purposes of trade - i.e. it's a benefit in kind, and therefore is liable to tax. I know that there isn't any case law yet to show that it should be treated as a taxable benefit, but I would be astonished if the courts took a different view.

The point on staff parties is the exact opposite - HMRC have made explicit provision for an annual benefit that is not taxable. Therefore (within reason) people should feel entirely free to make use of this provision.

[THEPUMA]

Not at all. My posts are entirely consistent. Don't mess around trying to save £57 on some dodgy Christmas party that you couldn't justify in front of the commissioners in a million years but do take advantage of tax planning opportunities are worthwhile.

I am not suggesting that anyone misappropriates anything. The company is simply putting its money into a bank account which is non-interest bearing.

If the director did not own the company 100% I would not normally recommend this but where it is, noone is losing out.

[Ruprect]

hmmm - if I take out myself, my co sec (the wife) and another 148 people that means I can get my turnover tax free - So I'll pay for everything and they give me the cash

As long as they are on your payroll

[BoredBloke]

hmmm - if I take out myself, my co sec (the wife) and another 148 people that means I can get my turnover tax free - So I'll pay for everything and they give me the cash