With the most festive time of year nearly upon us, office managers around the UK will be feeling the pressure to organise an amazing Virtual Christmas party to try and bring some goodwill and cheer into a dismal year. One bit of good news for those trying to organise such an event is that HMRC have announced that a maximum of £150 can be spent per head on virtual parties for employees (including non-employee guests) without being taxed on it.
It may be an idea to make sure there is evidence or a record of each person who attended the party in case your company is asked to demonstrate attendance.
This tax exemption is going to be applied in the same way that it would normally apply for traditionally held parties, thus meaning that food, entertainment, equipment and any other expenses that may come with holding a virtual Christmas Party will be exempt from being taxed. This is subject to the normal conditions that would normally apply being met.
Some of the conditions:
- The event must be primarily for entertaining all staff
- The event must be open to all staff in that location
- The overall cost of the whole event is an allowed expense for your business
- You can claim back input VAT however this may be restricted if you decide to also entertain customers
With this being the first year for most companies to perform a virtual Christmas party, planning as close to a structured and traditional event as possible may be the best way to ensure your company is eligible for the exemption. For example providing food and drink with a form of entertainment (magicians have never been so popular).
If your company has held other events such as functions or parties throughout the year it may mean your Christmas party will not be eligible for the tax exemption depending on who was invited and the amount spent.
What other options are available?
An alternative for employers not wanting to host a Christmas party is to provide employees with a gift valued up to £50 including VAT without paying tax on the gift. This is called the trivial benefits exemption. For the gift to be eligible it cannot be cash or a voucher that can be exchanged for cash, however gift vouchers that cannot be exchanged for cash are acceptable.
There are many gift options available such as hampers, gift cards or the much sought after “World’s best employee” mugs.
For clarification the gift cannot be given in exchange for work or performance.
Can my company do both?
These two tax exemptions can work hand in hand, meaning employees can attend a Virtual Christmas party (following the exemption rules) as well as receiving a gift under the trivial benefits exemption. The business should keep track of all expenses, no matter how minor, to ensure the limits are not exceeded.
A word of caution
Where the employer is a close company, and the benefit is provided to an individual who is a director or other office holder of the company (or a member of their family or household) the exemption is capped at a total cost of £300 in the tax year.
Secondly, if you provide a benefit to a group of employees and it is impractical to work out the exact cost per head, then it is acceptable to average the cost per employee.