‘Tis the season to book your Office Party!

Has COVID-19 ruined the spirit of Christmas?

With Christmas fast approaching, typically by now most employers and employees would be looking forward to their company Christmas party. However, this year has been like no other and Covid-19 restrictions have firmly put a stop to the annual office party. As such, many employers will be considering how to do things differently this year to make sure they wish their employees a happy Christmas after a difficult year.

The good news is that HMRC has confirmed that the annual parties exemption will apply to costs associated with virtual parties in the same way that applies for traditional office parties, provided the normal conditions are satisfied.

HMRC have provided the following example for Virtual functions:

A company holds one annual function in a tax year and does so virtually using IT. All employees are invited and each is provided with a hamper consisting of some food and drink to be enjoyed by the attendees during the party. The total cost per head is £100 which is within the £150 exemption and so the exemption applies.

A reminder for the rules:

Whether you are an owner-managed business, with only yourself as an ‘employee,’ or have a bunch of employees to take out for the evening, you can take advantage of a tax-efficient party.

The party should be an annual event (not necessarily at Christmas!), and open to all employees. It cannot cost more than £150 per head to be most tax-efficient, but this can include extra guests with your employees each bringing a +1.

Also, if you have multiple annual events throughout the year, as long as the combined cost of multiple annual events is no more than £150 per head, it is still allowable.

If the costs go above the £150 per head, they are subject to tax under the benefit-in-kind scheme. This means that the full cost of the entertainment will need to be declared on P11Ds for each of the employees, and tax paid by the employee on this benefit. In addition, the business will have to pay Class 1A National Insurance on the full cost, which could be quite expensive, dependent on the extravagance of your do!

An easier way of declaring the group benefit of staff entertainment is via a PAYE Settlement, in which you approach HMRC with a declaration of the benefit provided in one submission, and bear the full amount of the tax due (the employee Income Tax and National Insurance, as well as employer National Insurance). Again, this can be quite costly if your party is extra special.

We hope that the office party makes a return next Christmas but, in the meantime, get your ‘virtual’ Christmas party hats at the ready!

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