Virtual Christmas parties can be tax exempt

Employers hosting an annual, virtual event, such as a Christmas party that is available to all employers, are eligible for a tax exemption where the cost does not exceed £150 per head.

All costs of providing the event must be counted when calculating the ‘per head’ cost. This could include but is not exclusive to:

• Entertainment;
• Food and drink;
• Transport and accommodation that enables an employee to attend; and
• VAT.

According to accounting firm Moore, when arriving at the ‘cost per head’, the total expenses should be divided by the number attending, which may also include non-employees.

If the cost is exceeding £150 then the whole amount will become taxable, this is because it is not an annual allowance, but rather an exemption.

The Employment Income Manual has been updated and HMRC includes the following example of how this applies:

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.