"Office" Christmas parties – What are the options for 2020?

"Office" Christmas parties – What are the options for 2020?

With Christmas fast approaching, and with 2020 being a most unusual year, it’s unlikely that we will be able to have our traditional office Christmas parties. Businesses are wanting to support their employees and boost morale, so are considering the options available.

Annual function exemption

There is an annual function exemption available for staff social events, meaning no tax and NIC will be liable on the costs incurred on these. This includes any travel and hotel expenses for employees to attend the events, and also the VAT elements.

The exemption is £150 per attendee each tax year, and events that can be covered by this exemption must be annual and open to all employees. It can cover more than one event, such as a Christmas party and a summer barbecue, if the cumulative costs of both do not exceed £150 per head. Where an event pushes the limit over £150 per head, then the full cost of the event will be liable to tax and NIC.

Virtual events

With social distancing and various other restrictions preventing us from having physical events, online functions are looking favourable.

We’re all now very accustomed to online meetings so a virtual party providing entertainment such as a quiz could be an option. Employers could provide food and drink to their employees for them to consume during the virtual party, or allow employees to expense this up to a set limit.

Attendance will need to be evidenced in order for the costs to be covered by the annual function exemption. The cost of the food and drink for employees who do not attend will be liable to tax and NIC.

Trivial benefit exemption

It may be easier for employers to provide a gift to their employees such as a voucher or Christmas hamper.

There is a trivial benefit exemption available to cover staff gifts up to a value of £50 including VAT. The gift cannot be a non-cash voucher (a voucher exchangeable for cash), a contractual entitlement or any form of reward or incentive. If the gift fails on any of these points or exceeds £50, then it will be liable to tax and NIC.

To take advantage of both exemptions (ie. a maximum of £200 per employee), it is possible to provide employees with a gift as well as hold a virtual party. It is advisable, in this case, to ensure the costs of both are kept separate and to maintain relevant records. Careful planning is essential.

Get in touch

If you would like to discuss any areas mentioned within this insight or have any queries, please get in touch with your usual Azets contact.