Are you planning a virtual Christmas party?

As we prepare to exit full lockdown to enjoy the freedom of local restrictions, here’s a little something from HMRC for day 1 of your virtual advent calendar.

Annual function exemption

UK employers can take advantage of the annual function exemption, meaning no tax or NI contributions are payable on costs relating to annual social events organised for employees.

Employers need to be aware, for an event to be eligible it must be open to all employees to attend and there is a limit of £150 including VAT per attendee. Non-employee guests can attend and they are also allowed a limit of £150 per head. If the limit is breached, the employer will have to cover the tax and NIC for all the costs, not just the breach.

HMRC has confirmed that the annual function exemption can apply equally to virtual parties, such that the cost of providing food, entertainment, equipment and other expenses which may be incurred in hosting a virtual event. This would also cover the delivery of a ‘party box’ to all employees, for use or consumption at the virtual party.

If you are planning a virtual event you will need to ensure there is a way to collect attendance data as you may need to demonstrate attendance to qualify under the annual function exemption and ensure the limit of £150 per head is not breached.

Trivial benefits rule

With the current circumstances, you might have decided to cancel your event and provide your staff with a gift instead.

Under the trivial benefits rule, employers are able to send a gift up to the value of £50 including VAT without paying tax on the item. To be eligible for the exemption the gift cannot be cash and it cannot be in exchange for work or performance.

Have your cake and eat it? 

These exemptions can work alongside one another, so employees can be invited to a Christmas party, allowable under the annual function exemption and also be given £50 gift vouchers, covered by the trivial benefits exemption.

Find out more

Social functions and parties

Trivial benefits