Xtract Accounting, the small business Accountants for Directors and Limited Companies, highlight the problems being faced by employers when arranging this years staff Christmas party.
In years gone by, it would be at this time of year where employers would be making the final arrangements for their staff Christmas party…
The venue and entertainment are booked, bar tab and deposits paid, invites sent and RSVP’s received. Food orders have been taken and submitted, and the party games are set to cause a stir.
But no… this is 2020!
Venues and offices are shut and thanks to social distancing guidelines, are not likely to be accepting gatherings even when they are allowed to re-open… besides, it’s a bit late in the day to get anything organised this close to the festive season.
So, despite their best-laid plans, the chances are that employers are now faced with the unprecedented decision to host a ‘virtual Christmas party’ instead.
But even that is proving to be a headache for employers and employees alike… Read on to find out why.
What are the current rules?
Under normal circumstances, the Annual Event tax exemption allows employers to spend up to £150 per head (inclusive of VAT) on the costs of an annual function, such as a Christmas party.
Providing that certain conditions are met, there would be no tax consequences for the employer or employee. These include ensuring the event is open to all staff generally or all staff at a particular location if the employer has more than one office.
If the employer chooses to hold more than one annual event in a tax year, perhaps a summer BBQ also, no liability to tax arises provided that the combined cost of all events does not exceed the £150 per head.
The exemption is not an allowance, and therefore only applies to actual expenditures, including Travel and Accommodation for the staff.
Is a ‘virtual Christmas party’ viable?
Software such as Zoom and Microsoft Teams have become a necessity for businesses since COVID-19 began, with employees working from home, meetings, training and even sales calls are now held virtually.
And with employers hurriedly considering alternative ways to boost morale and arrange some seasonal fun for their staff, especially after all the difficulties caused by the pandemic, the ‘virtual Christmas party’ is fast becoming a reality.
Is it viable though?
Well employers could certainly consider live-streaming events, such as quizzes, food and wine tastings, cooking lessons or even ‘live’ entertainment to share as a team. This could potentially be accompanied by a ‘party box’ sent in advance to employees at their homes, with supplies of food, drink, and other favours to enjoy during the event.
Sounds great, doesn’t it?
So, what’s the problem?
At the time of writing, HMRC still remain tight lipped on whether a ‘virtual party’ can be treated as an Annual Event for tax purposes, even though so many other business functions have now moved online.
It has been suggested that HMRC could treat the ‘party box’ sent to the employees at home to accompany the online event, as a taxable benefit, particularly because the employee could then opt out of attending the event itself.
So those employers that are going ahead with plans to hold ‘virtual Christmas parties’ could face unintended tax consequences, not just for them but for their staff too.
"...an evolution of the meaning of an annual function."
Naturally, there is pressure mounting on HMRC to put forward some clarification on the matter. In an interview held last week, Jeremy Coker, the President of the Association of Taxation Technicians, said…
“We understand that HMRC are considering the matter. We would like HMRC to clearly state that they accept that a ‘virtual’ party falls within the existing rules as an evolution of the meaning of an annual function. This clarification is needed urgently because employers are thinking about what they can do for staff now. Indeed, some may already have taken decisions and booked events and supplies assuming the usual tax reliefs will apply and could get a nasty shock if they find that HMRC think differently.”
‘Trivial Benefits’ – A suitable alternative?
In addition to the Annual Events tax exemption, employers can also take advantage of the Trivial Benefits tax exemption which allows employers to make one-off seasonal gifts to staff, such as a bottle of champagne or a luxury Christmas pudding.
Again, there are a number of conditions that must be met to avoid any tax consequences – these being a maximum cost of £50 per employee, it must not be exchangeable for cash, and it must be a genuine gift and not intended as a reward for work done.
If HMRC does not accept that a ‘virtual event’ falls within the Annual Events tax exemption, it is thought that employers could instead look towards these Trivial Benefits rules.
However, for those employers that have already booked and paid for their online events, there could be some difficulty squeezing £150 of costs into £50, as again, VAT and all associated costs of the gifts must be factored in - where cooking demonstrations and ‘party boxes’ are concerned, there could be significant postage and delivery costs to consider.
Then there are those employers whom would normally utilise both tax exemptions in tandem – this is not a solution for them as where two gifts are made for the same purpose, HMRC will aggregate the costs when applying the £50 Trivial Benefits limit, and so they could be caught out if the tax rules for parties do not operate as expected this year.
One thing is for sure then, the 2020 Christmas Party is set to live long in the memories of most employees and their employers.
About the Author of this Blog post…
Hi, my name is Gordon Roe and I am the Founder and Managing Director of Xtract Accounting. Having worked in an accountancy practice setting for well over a decade, I had become accustomed to the same annual routine for clients - Books in… Analyse… Queries out… Answers in… Finalise… Accounts and Tax Advice out.
Then, in 2020 I realised I could use advancements in technology and software to significantly improve the relationship between accountant and client, and at the same time, provide an insightful and real-time tax advice service. After all, that is what the modern client expects and deserves!
And so, Xtract Accounting was born…
Xtract Accounting are online accountants based in Lincolnshire, who offer proactive small business accountancy services exclusively to Directors and Owner Managed, Micro and SME Limited Companies throughout the UK.
We specialise in helping Directors Xtract more out for the work they put in!
Our monthly 'FD' service with fixed monthly fees, sees us take on the more proactive role of Finance Director for your business, and offers a plethora of benefits including:
Inclusive accounting software provided by FreeAgent,
Your very own dedicated accountant,
Regular insights into how to maximise your tax efficient (or even tax free!) income,
Jargon-free telephone and email support,
Plus, much, much more!
With Xtract Accounting, you can be sure your accounts and tax will be kept up-to-date and organised.
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