Have you thought about a virtual Christmas party for your business? This year, all face to face meetings and events have been replaced by virtual meetings and events, and we have seen huge levels of creativity to achieve successful delivery. HMRC has now confirmed, where all normal conditions are met, virtual events can be included when considering the £150 exemption.
HMRC have updated their manuals to include virtual events within the annual party exemption when assessing Benefits In Kind.
Tax and staff parties
A staff party or an annual function qualify as a tax-free benefit for your employees providing that you meet the following conditions:
- It must be a recurring annual event, not a one-off.
- The total cost must not exceed £150 per head, per year.
- £150 includes VAT together with any extra costs such as transport and accommodation.
- The £150 is a limit and not an allowance: if the cost is £151, the whole benefit is taxable.
- The event must be primarily for entertaining staff.
- The event must be open to all staff (in that location, if you have several branches or departments).
- The event is not just to be for directors unless all your staff are directors.
- The cost of the whole event is an allowable expense for your business.
- You can claim back input VAT but this may be restricted where you are also entertaining customers.
An employer may spend up to £150 per head (inclusive of VAT) per year, in providing annual functions and events to entertain its staff.
Provided the £150 limit is not exceeded, there can be any number of parties, for instance, three parties at a cost of £50 each at various times of the year.
Virtual parties
HMRC has updated their guidance to include virtual annual functions within this exemption, which includes a virtual Christmas party. Virtual parties cannot have all employees in a single location so would ordinarily fail to qualify. HMRC’s revised guidance allows these events to qualify, provided that all of the other criteria are met.
A virtual party is defined as:
- An annual function provided virtually using IT.
An example of this:
- A company holds it’s annual function virtually using IT.
- All employees are invited.
- A hamper of food and drink is provided to each employee to enjoy during the party.
- The total cost is £100 per head.
The cost is less than the £150 per head maximum and so the function is tax-exempt.
Trivial benefits
Since April 2016, as part of a package of simplification measures, a new definition of what would constitute as a trivial benefit was added to ITEPA 2003. Prior to this time guidance existed that was open to misinterpretation and challenge.
The statutory exemption lays out certain criteria that must be met in order to be counted as a trivial benefit which ensure that:
- The benefit is not cash or a cash voucher
- The cost to provide does not exceed £50
- The benefit is not provided as a contractual entitlement
- The benefit is not provided in return for a normal service (or services) expected by the employee – eg hitting a pre-set performance target
Common examples seen include a gift of flowers on a birthday, a turkey at Christmas, or a modest layette on the birth of a child. More than one trivial benefit can be provided during the year; however, where the employer is a close company and the trivial benefits are given to a director, office holder or members of their families or households, an annual limit of £300 exists.
