Virtual Festive Fun and Tax Planning

Words you don’t usually hear together!


In 2020, planning a Christmas Party has become a whole lot more difficult, but it’s more important than ever if you want to boost morale in these challenging times.

But under Covid restrictions, how do you bring a sprinkle of festive cheer to your team? The traditional office party is certainly off the cards, making the tax implications a little more complicated too.

In the UK, businesses receive an annual function exemption, with no need to pay tax or national insurance contributions on costs relating to annual social events like a big Christmas bash for the team.

Normally, provided that the event meets a few criteria we’d be saying party on:

  • The total cost cannot exceed £150 per head, each year.
  • £150 includes VAT and any extra costs such as accommodation and transport.
  • The £150 is a limit, not an allowance so if the cost is £151, all of it is taxable.
  • The event must be primarily for entertaining employees.
  • The event must be open to all employees.
  • The event must not just be for directors, unless the team is only made up of directors.
  • The cost of the whole event is a suitable expense for your business.

So, the question is, how do you make sure you hit the mark to ensure your virtual party is exempt?

Whether you’re planning an online quiz, a virtual cocktail masterclass or keeping it simple with food delivery vouchers, it’s important to plan carefully and understand how they work with tax exemptions for employers.

The good news is HMRC have confirmed that annual party exemption will also apply to virtual festivities, including gifts consumed at the party.

As long as the whole team has been invited to the event, the business is eligible for exemption for food, drink and entertainment provided at the party up to a limit of £150 per person. The only difference to every other year is that the location is online rather than at a glitzy venue.

Stuck for ideas?

If you’re after virtual party inspiration, here’s an idea that qualifies for exemption:

  • Send all the team an invite to the virtual party including a Zoom or Teams link, the date and time, along with details on food, drink and entertainment.
  • On the morning of the party, each member of the team receives a hamper of food, wine and soft drinks delivered to their home.
  • At the time of the party, the team join the video call and spend the evening together enjoying the food and drink provided, and perhaps a virtual quiz or a live performance from your favourite local musician.

But please remember that the total cost of the food, drink, entertainment, postage and VAT mustn’t exceed the £150 per person limit.

Let the jingle bells ring and sparkly celebrations begin!

All a bit much?

If a virtual Christmas party sounds a bit too much for you and your business, then you can still spread the festive cheer and simply send your team a gift. Employers can send a gift worth up to £50 including VAT to each employee without having to pay tax on it.

The gift could be a hamper, a bottle of Champagne or a voucher for a local restaurant. Although cash is king, unfortunately, you cannot gift cash and the gift also cannot be linked to employee performance.

Don’t forget to keep track of any expenses for postage, cards, envelopes or gift wrapping as these can all be included in the £50 trivial benefit limit.

If you need any advice on what’s exempt or what’s not, talk to your Client Manager – we’d love to be your Christmas helpers and make sure that you don’t miss out on the benefits this festive season.

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