Virtual Christmas Celebrations & HMRC

Christmas 2020 is a year when I feel that saying thank you to my amazing team has never been more important. Thanks to COVID-19 my team have all been working remotely since March and now with lockdown restrictions that has put a stop to any annual office party – even with restrictions due to lighten on 2nd December as a team of 7 we have come to terms with the fact that we will not be meeting face to face this festive season.

I am sure many of you are also weighting up what you can do as a team/employer to boost morale and say Happy Christmas.

Virtual Christmas Parties

Section 264 of ITEPA 2003 allows an exemption where an employer hosts an annual event. This doesn’t have to be at Christmas, it could be held at any time of the year, the key here is that it is an annual event and is made available to all employees, or all in a particular location where an employer has more than one location, at a cost of less than £150 per head.

All costs of providing the event must be counted when calculating the ‘per head’ cost. This could include:

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

This list isn’t exclusive, and in arriving at the ‘cost per head’ the total expenses should be divided by the number attending, which may also include non-employees.

The £150 is not an annual allowance, if the cost is exceeded then the whole amount will become taxable.

This year, all face to face meetings and events have been replaced by virtual meetings and events, and we have seen huge levels of creativity to achieve successful delivery. HMRC has now confirmed, in response to stakeholder lobbying, that where all normal conditions are met, virtual events can be included when considering the £150 exemption.

Employment Income Manual (EIM) 21690 has been updated to take account of this news and a simple example has been added to EIM21691:

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.

Trivial Benefits / Employee Gifts

Since April 2016, as part of a package of simplification measures, a new definition of what would constitute as a trivial benefit was added to ITEPA 2003. Prior to this time guidance existed that was open to misinterpretation and challenge.

The statutory exemption lays out certain criteria that must be met in order to be counted as a trivial benefit which ensure that:

  • The benefit is not cash or a cash voucher
  • The cost to provide does not exceed £50
  • The benefit is not provided as a contractual entitlement
  • The benefit is not provided in return for a normal service (or services) expected by the employee – eg hitting a pre-set performance target

Common examples seen include a gift of flowers on a birthday, a hamper at Christmas, or a gift on the birth of a child. More than one trivial benefit can be provided during the year; however, where the employer is a close company and the trivial benefits are given to a director, office holder or members of their families or households, an annual limit of £300 exists.

Christmas Bonus

A Cash Gift (Christmas Bonus) is one way that some employers say thank you to their team to spread a little festive spirit.  A cash gift (whether at Christmas or not) is subject to PAYE Income tax and National Insurance. Some employers decide how much they want their employees to receive as a NET amount – in which case the Bonus needs to be GROSSED up – either way there are tax implications.

I have come up with my own plan on how to thank my Fresh Financials team members this season – BUT I can’t tell you what it is because they are likely to read this and then it won’t be a surprise 🙂