HMRC confirms that staff Christmas parties can be virtual
After growing calls for clarification on the matter with the ongoing COVID-19 restrictions, HMRC has finally confirmed today that the annual staff function (which typically exempts staff Christmas parties from benefits tax), can now include virtual events.
Annual Staff Function rules
This means that the cost of providing food, entertainment, equipment, and other expenses which may be incurred in hosting a virtual event will be exempt from tax, provided all other conditions are also satisfied. The key conditions to qualify for the annual staff function exemption are:
- The function must be available to all employees generally (or to employees generally at one location, where the employer has more than one location)
- The event must be annual in nature (e.g. Christmas or summer event) and so cannot include a one-off event (e.g. a party to celebrate a 25th anniversary)
- The cost of the event per head does not exceed £150 (VAT inclusive), or £150 in aggregate if two or more annual functions are provided
HMRC has just updated its guidance to include a new section in respect of virtual events:
Where an annual function is provided virtually using IT then the exemption is capable of being met provided all other conditions are also satisfied as the exemption applies to allow for costs of provision which are generally incurred for the purposes of the event itself.
It is worth remembering that alongside the annual staff function exemption, seasonal gifts can also be provided to staff tax-free, provided they meet the Trivial Benefits conditions:
- The cost of providing the benefit does not exceed £50
- The benefit is not cash or a cash voucher (so store vouchers are fine)
- The employee is not entitled to the benefit as part of any contractual obligation (including under salary sacrifice)
- The benefit is not provided in recognition of services performed by the employee as part of their employment duties (or in anticipation of such services).
This generally enables employers to give up to £50 of (non-cash) vouchers and/or gifts to their employees tax-free at Christmas time. It is important to ensure that the overall cost-per-employee does not exceed £50 as the whole amount would be taxable as benefit, not just the excess.
If any of the above conditions are not met, or the cost-per-head amounts are breached, the employer can always opt to settle any resulting tax and NIC charges on behalf of its employees on a grossed-up basis, by entering into a PAYE Settlement Agreement with HMRC. This will ensure the staff gifts remain truly tax-free to all the recipients.
To find out more, or if you have any further questions or queries regarding the above please contact firstname.lastname@example.org