Are you planning a virtual Christmas party?

 

A quick recap: 

 

1. A staff party or an annual function qualifies as a tax-free benefit provided that the total cost does not exceed £150 per head, per year. 

 

2. £150 includes VAT together with any extra costs such as transport and accommodation. The £150 is a limit and not an allowance: if the cost is £151, the whole benefit is taxable. 

 

3. The event must be open to all staff. The event must not just be for directors, unless all your staff are directors. 

 

4. You can claim back input VAT but this may be restricted where you are also entertaining customers. 

 

Given the current Covid-19 situation a physical event is unlikely to be an option for many businesses. Instead, employers might be planning a virtual event. 

 

Virtual Christmas parties – call for clarity from HMRC to help people avoid an unpleasant “tax hangover”. 

 

On 20 November, HMRC confirmed that they will accept a virtual Christmas party as an event which is capable of falling within the rules for annual functions. HMRC have supplied the following statement: 

 

“Having considered the scope of section 264 ITEPA03 (annual parties exemption), we are pleased to confirm that the exemption will apply to the costs associated with virtual parties in the same way that it would for traditionally held, parties. 

 

Therefore, the cost of providing food, entertainment, equipment and other expenses which may be incurred in hosting a virtual event, will be exempt, subject to the normal conditions of the exemption being met. It is important to note that the intention of the exemption is to allow for costs of provision which are generally incurred for the purposes of the event itself, and that the event, along with any associated provision, is available to employees generally.” 

 

The end of the Employment Income Manual EIM21690 has been updated to take account of this news so ‘Virtual functions’ are now included and a simple example No.3 has been added to EIM21691. 

 

 

In addition to the exemption for an annual function, employers can also take advantage of the trivial benefits rules to make seasonal gifts to staff such as a hamper or a voucher for food and drink. 

 

Under the trivial benefits rules, employers can provide benefits costing up to £50 to an employee without tax consequences - provided that these benefits are intended as genuine gifts and not intended as a reward for their work. You can read our detailed blog on this if you Click Here. 

 

 

The two exemptions can work alongside each other, so employees can be invited to a Christmas party, allowable under the annual function exemption and also be given £50 of, say, gift vouchers, covered by the trivial benefits exemption. 

 

However, it needs to be noted that for example the provision of a food voucher above £50 in the absence of the elements of a Christmas party will mean that the annual functions exemption will not be available. Therefore, if the annual function exemption cannot be applied, an alternative approach could be for employers to keep the entire costs of the event within the trivial benefits rules. 

 

For help and advice on related matters, please get in touch with our expert team today.