With COVID -19 restrictions still in place across most of the U.K., traditional office Christmas celebrations won’t be possible this year. Therefore, many employers are finding other ways to allow staff to celebrate together, with virtual party options including cocktail making classes, wine tasting, games nights and even Christmas dinner home deliveries.  

For employers concerned about the tax treatment of these events, the good news is that HMRC have now confirmed that holding an event virtually will not prevent the costs from being covered by the tax exemption for annual functions.
 
How does the exemption work?
 
The exemption has been in place for many years, and means that no tax or national insurance contributions will arise on the cost of annual social functions for employees, provided the following conditions are satisfied:

• The cost of the event does not exceed £150 (including VAT) per head;
• The event is annual; and 
• The event is open to all employees 

Following HMRC’s recent announcement, virtual events will also be covered by the exemption, so long as the above conditions are still met.
 
Attendees can be staff partners/spouses too, and the overall cost is divided by total attendees, not just employees.  Obviously costs should not include accommodation or travel costs, if staff are joining from home, but this should mean the food and drink costs could be quite generous, along with any costs for comperes, guest speakers, crackers, party hats etc! 
 
Events should not however be extended to clients/business contacts, as this could change the nature of the event. 
 
What about trivial benefits? 

As an alternative, a number of employers have reverted to sending employees “old fashioned” hampers this year which, so long as the cost to the employer is under £50 (including VAT) per person, may be regarded as a trivial benefit and therefore not incur a tax charge. To qualify, a gift must also not be in the form of cash (or a voucher that can be exchanged for cash) and must not be given as a reward for work or performance.  
 
Therefore, this could also be a useful exemption to provide employees with a little festive cheer this year. 

Please contact your A&M point of contact, or Linda Cameron or Tracey Norton from our Reward & Employment Tax Solutions team, should you require any assistance with the points raised above.