HMRC confirms virtual Christmas parties are exempt from tax

With the current situation, celebrations of any kind have and will be a lot different this year – including work functions, such as the annual Christmas party.

Usual rules allow employers to spend up to £150 per head (including VAT) towards the costs of an annual function (such as a Christmas party), without creating a tax liability for their employees and themselves – provided that certain conditions are met.

However, with Covid putting the end to any such face-to-face celebrations, many employers will be looking for alternative ways to observe seasonal greetings and boost morale.

Luckily, HMRC has confirmed that they will accept a virtual Christmas party as an event that is capable of falling within the rules for annual functions.

HMRC stated: “Having considered the scope of section 264 ITEPA03 (annual parties exemption), we are pleased to confirm that the exemption will apply to the costs associated with virtual parties in the same way that it would for traditionally held, parties.

“Therefore, the cost of providing food, entertainment, equipment and other expenses which may be incurred in hosting a virtual event, will be exempt, subject to the normal conditions of the exemption being met.

“It is important to note that the intention of the exemption is to allow for costs of provision which are generally incurred for the purposes of the event itself, and that the event, along with any associated provision, is available to employees generally. We will be updating our GOV.UK guidance shortly.”

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