Coronavirus has put paid to another one of the year’s highlights – the traditional office Christmas party. However, employers can still provide a celebration for their employees – in a tax efficient manner of course – by throwing a virtual Christmas party instead!
What’s the tax position for the employer?
The cost of staff entertaining is an allowable deduction for a business and input VAT can be reclaimed. This is also the case where an event includes staff and their partners.
However, the cost of entertaining customers, suppliers, potential customers and so on is not tax deductible and nor is the input VAT recoverable.
If there is a mixed event for staff and customers an apportionment will be needed so that only the staff related costs are allowed.
What’s the tax position for the employee?
The entertainment cost is a benefit in kind for employees who are charged to tax on the amount of their share UNLESS the event is exempt.
When is an event exempt from tax?
If an event meets the following conditions then it is tax free for the employees:
- It must be an annual or recurring event, not a one-off. Christmas parties are a perfect example!
- It must be available to all employees
- The total cost of such events held during the year must not exceed £150 per head
Note that if the cost per head exceeds £150 then the whole amount is taxable – not just the excess – and employees cannot make a contribution to costs to reduce it back below £150 per head.
Can a virtual Christmas party be exempt?
Great news – yes it can!
H M Revenue & Customs have updated their manuals and guidance to confirm that virtual events and functions will qualify for the exemption.
As an example, if an employer invites all employees to a virtual party and provides food and drink hampers for them to enjoy during the party then this can qualify as a tax-free benefit for staff and a tax-deductible cost for employers.
Further information
If you have any questions about staff entertaining or any other benefit-in-kind issues please contact me.
