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Virtual Christmas parties qualify for tax exemption

HMRC has confirmed that they will accept a virtual Christmas party as an event which is capable of falling within the tax exemption rules for annual functions.

The Association of Taxation Technicians (ATT) has received the following statement from HMRC:

“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. We will be updating our GOV.UK guidance shortly.

How does it work?

The rules allow employers to spend up to £150 per head (including VAT) towards the costs of an annual function such as a seasonal party, without creating a tax liability.

To qualify the party must be an annual event which is open to all staff generally, or all staff at a specific location, if the employer has more than one location. If the employer has more than one annual event in a tax year, for all the events to be tax-free the combined cost per head must be no more than £150.

Christmas gifts for employees up to £50

Certain gifts to staff at Christmas are also tax free if structured correctly. Employers are allowed to provide their directors and employees with certain “trivial” benefits in kind tax free. 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.

This exemption applies to small gifts to staff at Christmas, on their birthday, or other occasions and includes gifts of food, wine, or store vouchers.

What are the conditions for the exemption to apply?

There are of course a number of conditions that need to be satisfied to qualify for the exemption:

  • The cost of providing the benefit does not exceed £50
  • The benefit is not cash or a cash voucher
  • The employee is not entitled to the benefit as part of any contractual obligation such as a salary sacrifice scheme
  • The benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services)

In addition, this is not a solution for those employers who usually provide a gift under the trivial benefit rules already in addition to a party. Where two gifts are made for the same purpose HMRC will combine the costs when applying the £50 trivial benefits limit.

Contact the tax team at MHA Carpenter Box for further information or advice.