2020 is a year when an employer’s ability to say thank you to their employees has never been more important but the Covid-19 lockdown restrictions have put a stop to the annual office party and have forced employers to think of alternative ways to wish employees a happy Christmas and to boost morale.
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:
- Food and drink
- Transport and accommodation that enables an employee to attend
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This year, all face to face meetings and events have been replaced by virtual meetings and events, and we have seen huge levels of creativity to achieve successful delivery.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.
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.
This will come as great news for the 49% of employers who, in a recent CIPP poll, confirmed that they fund the full amount incurred for hosting the annual Christmas party.