HMRC has confirmed that the annual party exemption now also applies to the costs associated with virtual parties and festivities in the same way that it would for traditionally held parties.
The rules allow an exemption where an employer hosts an annual event, meaning that virtual parties which are made available to all employees are exempt from tax where the cost does not exceed £150 per head.
All costs of providing the event must be counted when calculating the ‘per head’ cost. This could include but is not exclusive to:
- Food and drink
- Transport and accommodation that enables an employee to attend
When arriving at the ‘cost per head’, the total expenses should be divided by the number attending, which may also include non-employees.
If the cost is exceeding £150 then the whole amount will become taxable, this is because it is not an annual allowance, but rather an exemption.
The Employment Income Manual has been updated and HMRC includes the following example of how this applies:
“A company holds one annual function in a tax year and does so virtually using IT. All employees are invited and each is provided with a hamper consisting of some food and drink to be enjoyed by the attendees during the party. The total cost per head is £100 which is within the £150 exemption and so the exemption applies.”
The statutory tax exemption for providing trivial benefits in the form of gifts still applies. So you can buy an employee a Christmas gift, tax free, so long as it costs less than £50, it’s not cash or a cash voucher, it’s not contractual and it’s not in exchange for services provided.
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).
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.
*Trivial benefits can be provided more than once a year e.g. Christmas gift and a birthday gift providing each does not exceed £50.