'Virtual Christmas party' benefit exemption clarified by HMRC

04.12.2020
Dominic Smith
News, Tax

A problem often faced by employers who seek to be generous to their employees is the following: what can I give to an employee that won’t attract any extra tax (on the employee and employer) or admin work?

When it comes to staff parties, the rules are reasonably generous. To be an exempt benefit, the party must be all of the following:

  • £150 or less per head (including non-employees, such as their partners)
  • annual, such as a Christmas party or summer barbecue
  • open to all your employees

Therefore, your Christmas party is not likely to cause you any tax issues unless it is particularly extravagant relative to the people invited. Once you go over the £150 though, the whole amount is taxable – it does not count as any sort of allowance. 

But 2020 is different – and HMRC have updated the rules to reflect the fact that “physical” staff parties with lots of employees invited is a highly unlikely situation, and so (where all normal conditions are met), virtual events can now be included when considering the £150 exemption.

The guidance now has an extra paragraph stating:

Where an annual function is provided virtually using IT then the exemption is capable of being met provided all other conditions are also satisfied as the exemption applies to allow for costs of provision which are generally incurred for the purposes of the event itself.”

HMRC have also outlined one example to show how this might work:

“A company holds one annual function in a tax year and does so virtually using IT. All employees are invited, and each is provided with a hamper consisting of some food and drink to be enjoyed by the attendees during the party. The total cost per head is £100 which is within the £150 exemption and so the exemption applies.”

So, if you wish to hold an annual party virtually, you can do so safe in the knowledge that the normal benefit in kind rules still apply to it.

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