Now, in the festive season, employers may be questioning how exactly to bring their team together and celebrate without an annual party or the infamous secret Santa. Find below some useful updates as we approach the festivities.
Virtual Christmas parties will qualify for tax exemption
HMRC has confirmed that they will accept a virtual Christmas party as an event which is capable of falling within the tax exemption rules for annual functions.
The Association of Taxation Technicians (ATT) has received the following statement from HMRC:
'Having considered the scope of section 264 ITEPA03 (annual parties exemption), we are pleased to confirm that the exemption will apply to the costs associated with virtual parties in the same way that it would for traditionally held parties.
'Therefore, 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 of the exemption being met.
'It is important to note that 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. We will be updating our GOV.UK guidance shortly.'
The rules allow employers to spend up to £150 per head (including VAT) towards the costs of an annual function such as a seasonal party, without creating a tax liability.
To qualify the party must be an annual event which is open to all staff generally, or all staff at a specific location, if the employer has more than one location. If the employer has more than one annual event in a tax year, for all the events to be tax-free the combined cost per head must be no more than £150.
See the full update here: ATT news
Tax free employee gifts
Some employers may wish to give a small gift to their employees. As long as the employer meets the relevant conditions, no tax charge will arise on the employee.
A tax exemption is available which should help employers ensure that the benefits provided are exempt and do not result in a reportable employee benefit in kind. In order for the benefit to be exempt it must satisfy the following conditions:
- the cost of providing the benefit does not exceed £50 per employee (or on average when gifts are made to multiple employees)
- the benefit is not cash or a cash voucher
- the employee is not entitled to the benefit as part of a contractual arrangement (including salary sacrifice)
- the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties
- where the employer is a 'close' company and the benefit is provided to an individual who is a director, an office holder or a member of their household or their family, then the exemption is capped at a total cost of £300 in a tax year.
If any of these conditions are not met then the benefit will be taxed in the normal way subject to any other exemptions or allowable deductions.
No more than £50
One of the main conditions is that the cost of the benefit does not exceed £50. If the cost is above £50 the full amount is taxable, not just the excess over £50. The cost of providing the benefit to each employee and not the overall cost to the employer determines whether the benefit can be treated as a trivial benefit. So, a benefit costing up to £50 per employee whether provided to one or more employees can be treated as trivial. Where the individual cost for each employee cannot be established, an average could be used.
HMRC examples consider various gifts including turkeys, bottles of wine and gift vouchers.
Further details on how the exemption works, including family member situations, are contained in the HMRC manual.
However if you are unsure please do get in touch before assuming the gift you are about to provide is covered by the exemption.