How to keep the Christmas spirit alive!

With the latest restrictions and remote working making the traditional office party a no-go this Christmas, employers are turning to virtual celebrations for this year’s festive season.


Some businesses are sending Christmas hampers to workers’ doors on the same day as hosting an interactive quiz for all employees to enjoy. Other employers are arranging live-streamed magic shows or even keeping their party plans under wraps to surprise employees.


While most employees in the UK cannot get together face-to-face this month, the same tax break for annual parties that usually applies to the traditional Christmas party can be used for online events.


The annual party exemption

Employers can splash out up to £150 a head on an annual Christmas party without needing to notify HMRC. 


If the cost of your virtual party this year exceeds £150 per person (including VAT), you will need to pay tax on the entire event – not just the amount that exceeds £150. No tax or national insurance contributions are payable on costs below this amount relating to annual social events for employees.


As far as the qualifying criteria goes for this benefit, the online party needs to be offered to all employees within the business, rather than a select few. It also needs to be an annual celebration instead of a one-off event like an employees 25th anniversary, for example.


The exemption also applies to employees’ spouses or civil partners and customers, as long as the number of customers taking part does not exceed the number of employees.


Employers staging a virtual get-together this month should incorporate elements of a traditional Christmas party, such as supplying food, drink and entertainment, to meet the requirements for the tax break.


Records to keep

Usually, HMRC does not expect employers to keep cumulative records of employees who attend annual functions assuming the cost per head does not exceed the £150 limit during the tax year.


However, according to the ICAEW, employers “may need to demonstrate attendance at an online event for it to qualify under the annual function exemption” in 2020/21.


Despite the official guidance from HMRC remaining unchanged, it might be worth keeping track of who attends the virtual party in the run-up to this Christmas just in case HMRC comes calling at a later date.


Giving gifts

Christmas wouldn’t be Christmas without giving presents and, under the trivial benefits rule, employers can give members of staff gifts worth up to £50 without being liable for tax.


This cannot be a cash reward for performance over the course of the most difficult of years or an incentive in a worker’s contract, but it can be used at the same time as the annual party exemption.


So, employers that want to stage a virtual event this month can also provide gifts up to the value of £50 to staff without paying tax.



Blog post uploaded 9 Dec 2020