Tax Efficient Virtual Xmas Parties!

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Tax exemption for a virtual Christmas party?

Like other employers you may have held an alternative to a staff Christmas party – but if there’s a cost in providing the event will it count as a taxable benefit for your employees?

Exempt benefit in kind

You’re probably familiar with the tax exemption which applies to employer-paid-for annual parties and similar annual events. It allows you to put on, say, a Christmas party for your staff without it counting as a taxable benefit in kind where the cost per head is no more than £150. However, in recent years, coronavirus has played havoc with seasonal festivities and we’ve all had to think outside the box a little…

It’s virtually a party, right?

A number of entrepreneurial businesses have come up with ideas for virtual social events to generate some festive cheer – for example, online group quizzes, music events, seasonal cooking classes and more. While they are generally cheaper per head than the average real-life Christmas bash there’s still a cost involved. This has raised the question of whether the previously mentioned exemption can apply. The exemption isn’t just important for your employees to prevent them being landed with a tax bill, but also for you as their employer. If the event counts as a taxable benefit you’ll have to pay Class 1A NI at 13.8% of its cost.

Technical tax trouble?

There were concerns that terms of the exemption could prevent it from applying to virtual events. For example, usually the event must be available to “employees generally or available generally to those at a particular location” . Therefore, all your staff should be invited either to the same event or to one for their branch, department, etc. Remember, the exemption applies not only to your staff but their guests, e.g. their spouse, partner or friend.

Because of the uncertainty tax experts asked HMRC for confirmation that the exemption could apply to virtual events. In its response HMRC said “the cost of providing food, entertainment, equipment and other expenses which may be incurred in hosting a virtual event, will be exempt, subject to the normal conditions…” . It continued, “the intention of the exemption is to allow for costs of provision which are generally incurred for the purposes of the event itself, and that the event, along with any associated provision, is available to employees generally” .

What about food and drink?

What’s a party without food and drink? A virtual glass of vino isn’t likely to do the trick but providing the real thing is a logistical problem. The rules of the exemption don’t mention the provision of food and drink specifically, but HMRC’s comments, mentioned earlier, cover the situation.

The easiest way to provide food and drink for your employees is to set a budget for them to spend on items to be enjoyed during the online event. You can reimburse them, tax and NI free, the lesser of what they spend and the amount of the budget.

The taxable benefit exemption for annual parties will apply, subject to the usual rules. It will also apply to the cost of food and drink. To stay in line with the rules set a budget and ask your staff to buy their own food to enjoy during the event – you can then reimburse them the lesser of the budget amount or actual cost.