Virtual Christmas party counts towards annual function exemption

Employers may be considering how they can celebrate the upcoming festive period, since a traditional office Christmas party is out of bounds.

Moving merriments ‘online’ is one way to ensure that you can all still get together, safely.

An online office Christmas party on the cards?

After calls for clarification, HMRC has now confirmed that a virtual Christmas party will come under the existing annual function exemption, provided the usual conditions are satisfied.

The existing rules exempt employers from paying tax or national insurance contributions on the cost of annual social functions for employees, where the following is true:

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

The overall cost is divided by the total number of attendees, meaning partners/spouses can join in the fun. It is worth bearing in mind though, that once the cost exceeds the £150 limit the whole amount becomes taxable.

Food, drink, equipment and entertainment are allowable expenses. The money available for these elements could also be more substantial this year, particularly when you consider that travel and accommodation will not be required if people are joining a zoom call from the comfort of their living rooms!

Trivial benefits

Employers may also choose to provide employees with a ‘trivial benefit’ this Christmas; perhaps a small hamper, a Turkey or some nice wine.

To be deemed a ‘trivial benefit’, the offering must not:

  • be cash or a cash voucher;
  • exceed £50 in value;
  • be provided as part of a contractual entitlement;
  • be provided in return for the employee carrying out their normal duties, or for meeting a pre-agreed performance target.

In a year, more than one trivial benefit may be provided. Where the employer is a close company, however, and the benefits are given to a director, office holders or members of families/households, an annual limit of £300 applies.

Christmas cash bonuses

Cash bonuses remain subject to tax and national insurance. Regardless of the amount given by the employer, what each employee receives in their pay packet will depend on their individual circumstances.

How can George Hay help?

If festive finances are something you’d like to discuss in more detail, and in particular how the exemptions that are available could benefit you, contact us today.

HMRC also operate an helpline for employer’s general enquiries.

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