Virtual Party Tax exemption

Following the government’s recent announcements on stricter COVID-19 restrictions, many employees are now working from home and will probably be doing so in the near future – or at least for the next six months.

CEOs and HR teams have increased their focus on how they can keep employees engaged while they are working remotely for a prolonged period.

A common concern our clients raise with us is around what benefits to provide, and how to create an inclusive social environment while we’re all working apart (via Google Meet, Teams or Zoom). About this time of year, we’d typically start planning for Christmas parties – a chance for employees to unwind and celebrate the successes of the year. But what will those parties look like this year?

The usual face-to-face get together is probably not possible or advisable, but virtual events can still take place. Remote team games and activities can be a great way for smaller groups to celebrate.

But on top of employers facing the logistical challenges around employee well-being and motivation, there are cost and tax considerations to consider also.

• Eligibility criteria for Tax and Staff parties
• Virtual Parties
• New HMRC’s guidance on Virtual Party exemption
• Do Trivial benefits still qualify?

Eligibility criteria for Tax and Staff parties

A staff party or annual function qualify for a tax exemption benefit only if they meet the following conditions –

1. It must not be a one-off but a recurring annual event.
2. The total cost of the event must not exceed £150 per head per annum.
3. The cost of £150 is inclusive of VAT and also includes extra costs like transport and accommodation.
4. The cost of £150 is not an allowance but a limit specified by the government. If your total cost per head goes beyond £150, you need to pay the tax on the whole benefit, and there will be no exemption provided by the government.
5. The event must be organised primarily for entertaining the staff.
6. The event must be open for all the staff members, including the branches or departments located in that location.
7. The whole event cost is an allowable expense for your business.
8. The event should not be directors only event unless all your staff members are directors.
9. You can even claim back input VAT, but there may be restrictions in the case where you are also entertaining the customers.

You can also arrange several parties in a year if the total cost per head is less than the limit of £150. For example – 3 parties organised by a company at various intervals at the cost of £50 each in a relevant tax year.

Virtual Parties

Virtual parties are the staff parties, or annual functions organised or hosted virtually by the companies via Google meet, Teams or Zoom or any other mode. In prior years employers would look to utilise the annual parties’ exemption – which depending on how you define “party” might or might not apply to virtual events but cheers to the recent guidelines of HMRC, now the virtual events can also qualify for tax exemption provided a few conditions have been met. For example – If a company organises a virtual event via Zoom in a tax year, invites all their employees and send them to all a hamper consisting of some food and drink so that each one of the attendees enjoys during the party and the total cost per head is £120, which is less than the specified limit of exemption, i.e. £150. Here, the exemption applies.

New HMRC’s guidance on Virtual Party Exemption

On 20 November 2020, HMRC confirmed that annual parties exemption will now also apply to virtual festivities, inclusive of gifts consumed at the party. As per section 264 of ITEPA 2003, an employer who is hosting an annual event, not only Christmas but anytime in the year is eligible to claim tax exemption at cost less than £150 per head. The amount of £150 cannot be considered as an annual allowance, and when the cost per head goes beyond £150, whole the amount will become taxable. When you calculate per head cost of an event, it includes all the cost of expenses incurred in hosting an event –

1. Food and drink
2. Entertainment
3. VAT
4. Transport and accommodation that enables an employee to attend

To calculate the “Cost per head”, you need to divide the total expenses with a number of employees attending the event (including non-employees).

Now, this year is near to its completion, but as per the recent announcement on virtual party exemption made by UK government, all eyes are on the Virtual Christmas parties that the companies will organise in less than a month from now.

Also See: Want to Claim Your Christmas Party as Business Expense?

Do trivial benefits still qualify?

Employees can still reward their staff with gifts under the trivial benefits rule. To get counted as a trivial benefit, you need to meet the below-mentioned criteria –

1. The benefit should not be in cash or a cash voucher.
2. The value of the benefit provided should not exceed £50.
3. The benefit should not be provided as a contractual entitlement.
4. The benefit should not be provided in exchange for any work expected by the employee.

Some of the examples of trivial benefits include Gift of flowers on a birthday, turkey at Christmas, layette on child’s birth etc.

If you require any further guidance and tips on tax planning and exemptions for staff parties or annual functions over the Christmas period or anytime in the future, Contact DNS Accountants on 03330886686, or you can also e-mail us at enquiry@dnsaccountants.co.uk

About the author

Siddharth Agarwal
I am a Chartered Tax Advisor (OMB) and ACCA. I have 9+ years of experience in owner-managed business taxation issues, company reorganisations, property taxation, and succession planning. I also work with private clients on bespoke tax planning strategies for trusts, residence status, and non-residents. I aim to fulfil my professional duties towards my clients and keep them satisfied, my utmost priority. I believe in establishing and maintaining businesses and personal relationships as the key to mutual growth.