Virtual Christmas parties eligible for annual event tax exemption

HMRC has revisited the scope of Section 264 ITEPA 03 relating to the annual event exemption and extended it to virtual gatherings over the festive period.

With workplace restrictions still in place for many small businesses, traditional office Christmas parties are off-limits this year. However, HMRC has confirmed that the costs incurred from hosting virtual Christmas parties can still be covered by the tax exemption for annual functions.

Across the UK, small business owners do not have to pay tax or national insurance contributions (NICs) on any expenses linked to annual social events arranged for staff, up to a maximum of £150 per attendee. This also includes guests that aren’t employees of the business.

For an annual event to be eligible for the tax exemption, HMRC insists it must be open to all employees. Alternatively, for businesses with multiple locations or offices, all employees must be given the option of attending one event each.

An HMRC spokesperson said: “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.”

Do trivial benefits still qualify?

It is still possible for employers to reward staff with gifts under the trivial benefits rule. Gifts up to the value of £50 can be bought for employees without paying tax on each item.

Gifts cannot be cash or gift vouchers that can be exchanged for cash and must not be offered in exchange for work.

If you require any further guidance on tax planning and exemptions for your employees over the Christmas period, your local TaxAssist accountant can put you firmly in the picture.

For a free initial consultation, call our friendly and experienced team today on 0800 0523 555 or drop us a line using our online enquiry form.

Date published 26 Nov 2020