If you’re not working on achieving a happy virtual Christmas event, you must. The job may sound a bit challenging, but our tax experts have already figured out the Christmas party tax allowance you need to consider.
The 2020 festive season is on the boom. Traditional office Christmas parties are good to boost the morale of the employees, so go ahead and plan one. The year has been pretty difficult already. So let’s ease up and try to end this year on a lighter and fun note. Here are some Christmas party tax allowance you must consider before moving forward:
What is the tax treatment for an office Christmas party?
You can take advantage of the annual function exemption which means that no tax or National Insurance Contributions are applicable to the money related to annual social events organized for employees.
How the Christmas party tax allowance works
The limit is £150 per attendee, and in any case, if you’ve spent any more amount, the employer must cover the additional taxes for all the costs. In case you’re wondering, the exemption is for all the costs includes VAT.
But you have to follow these simple rules:
- Your office party should be open to all your employees.
- An annual party or social function, such as a Christmas party or summer barbecue.
- The cost should not go beyond £150 per individual.
- In the case of two parties, make sure that the cost of both parties does not exceed £150 per person.
Be more pragmatic about it, and make sure you’re keeping all the corona restrictions in place. Make sure you’re taking care of social distancing and making hand sanitizers accessible for everyone.
Arrange a virtual Christmas party.
It’s always a good idea to make things virtual these days. Host a virtual event, and figure out ways to collect data for a record. This will help you demonstrate the attendance of all your employees. Entertainment doesn’t have to be compromised. Invite musicians, standup comedians, and arrange food and drinks for all the staff members to make sure nothing is compromised on the entertainment part.
HMRC Confirms in the forementioned breakdown in the following passage:
“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.
Use Gift as an Alternative – Tax on trivial benefits
If you’re avoiding the hassle, the best way to figure it out would be to make sure you’re sending out gifts for the festivities. If you’re worried about the rules, know that HMRC has allowed an exemption over a gift of £50. This includes the VAT and you don’t have to pay taxes on each item. The employer can choose, whether he wants to give a hamper or voucher for food and drinks.
As per HMRC Guidance, You don’t have to pay tax on a benefit for your employee if all of the following apply:
- it cost you £50 or less to provide
- it isn’t cash or a cash voucher
- it isn’t a reward for their work or performance
- it isn’t in the terms of their contract
This is known as a ‘trivial benefit’. You don’t need to pay tax or National Insurance or let HM Revenue and Customs (HMRC) know.
Director of a close company?
You can’t receive trivial benefits worth more than £300 in a tax year if you’re the director of a ‘close’ company. A close company is a limited company that’s run by 5 or fewer shareholders.
Pay Attention to Details
You can be generous enough to host a virtual Christmas party and send out gifts to your employees too. Make sure you’re taking care of other details too. Let’s say you’re including the gift wrapper cost in the gift expense too when your gift is under the threshold of £50.
Party hard while making sure you’re taking care of your taxes. If you’re looking forward to dig further into HMRC’s guidelines, find these here:
- Social functions and parties and technical guidance on s264 ITEPA 2003 in EIM21690
- Trivial benefits and technical guidance on s323A ITEPA 2003 in EIM21864