23rd November update: HMRC has confirmed their earlier advice by amending the exemption on annual functions by including virtual parties.
Further to our article issued earlier this week regarding options for Christmas annual events and gifts to employees, today, 20 November, HMRC appear to have indicated a change to their previous approach, and confirmed it on 23 November.
Due to pressure from various interested bodies, HMRC has now confirmed that the annual event exemption rules will apply to all costs associated with virtual Christmas parties in a similar way to the traditionally held parties.
HMRC have indicated that holding the annual Christmas event virtually this year, by Zoom etc, and the cost of providing party gift boxes to all employees to participate in that event will fall under the annual function exemption, providing the usual conditions are met:
- An annual event, i.e. occurring every year;
- Open to all employees, either at a particular site or all employees at all sites. Not all employees are required to attend, but have to have the opportunity to attend, for the exemption to be met; and,
- The total annual cost of event(s) must be no more than £150 per head(including VAT). Therefore, if you have more than one annual event during the year i.e. a summer event and a Christmas event, then the combined total of both events must cost less than £150 per head to qualify.
So, providing the above conditions are met, virtual party costs including gift boxes provided as part of the event will have no income tax and NIC implications. This is good news.
To ensure that you are compliant with the conditions set out in the exemption, we recommend that you:
- Ensure robust records are kept to support the expenditure on the party, i.e. to evidence that all employees have been invited, the overall cost of the event (including VAT, and cost postage and delivery of any gift boxes), and the numbers of staff who attended;
- Include the cost of this event together with any other annual event to check if there is any income tax and NIC liability due to the costs of all the events exceeding £150.00 per head.
If you provide a separate gift to employees, i.e. which is not incurred as part of the cost of the provision of the virtual Christmas party itself, then you will need to determine whether the total cost can be covered by the trivial benefit exemption, or, if the exemption cannot be utilised, how to meet the income tax and NIC compliance and reporting obligations that will arise as detailed in our previous article. Whilst HMRC will accept that a food and drink hamper or activities/games provided for consumption/use during the virtual party will form part of the annual event cost, provision of gifts such as gift vouchers etc are unlikely to be accepted as part of the function. If the cost of the separate gift is more than £50.00 (including VAT, delivery charges etc) per employee, or not within the scope of trivial benefits, then your options are to either include the benefit in the individual’s Form P11D return, and then you pay the Class1A NIC, or include the cost in your 2020/2021 PAYE Settlement Agreement (‘PSA’).
If you would like further advice or information please contact our Employment Tax team.
