Virtual parties – is it a case of bah humbug from HMRC?

Nov 23, 2020

The traditional Christmas party might be the ghost of Christmas past with virtual parties now the ghost of Christmas present. But what is HMRC’s view on the tax treatment of the virtual Christmas party? Happily, we have confirmation that the party may qualify for the well-known £150 per head exemption for annual parties and similar annual functions. The view from HMRC is set out below together with some guidance on paying employees early in December.

“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.

We know that some employers pay their employees earlier than usual over the Christmas period, for example the business may close for Christmas and New Year. If you do pay early, please report your normal payment date on your Full Payment Submission (FPS).

For example: if you pay on 18‌‌‌ ‌December 2020 but your normal payment date is 31‌‌‌ ‌December 2020, please report the payment date as '31‌‌‌ ‌December 2020'. In this example the FPS would need to be sent on or before the 31‌‌‌ ‌December.

Doing this will help protect your employees’ eligibility for Universal Credit, because reporting an early payment could affect further entitlements.

For further information, please refer to the Employer Bulletin – 87, which will be published in early December 2020.”