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  • Katherine Bullock

Christmas 2020 – The First Ghost - Tax and The Ghost of Christmas Parties

Although non-stop Christmas songs and decking of the halls began almost a full month ago now, we are finally entering December, and it’s time to start thinking about the holiday season. So, this month we will be visited by three ghosts – three spectres rising from the mists of Whitehall to haunt the living, and occasionally the dead. My somewhat esoteric phantoms are the Ghost of Christmas Parties, the Ghost of Christmas Presents, and the Ghost of Christmas Futons. However, do not fear, for with a little planning and insight, a future of angry letters from HMRC can be avoided!

"...The first ghost...has come to warn us about a pall looming over the annual office Christmas party..."

The first ghost, that of Christmas Parties, has come to warn us about a pall looming over the annual office Christmas party. While some might wonder whether this institution of office life could continue in the midst of the renewed restrictions and lockdowns this winter, the office Christmas party has moved into the virtual realm. From a tax perspective, an exemption exists for UK employers whereby costs related to an annual social event are not subject to tax or national insurance contribution payments - so long as the cost per attendee remains under £150 (including all end-to-end costs such as VAT) and the event is open to all employees. This makes holding at least one annual party for employees a straightforward option for improving morale and rewarding workers for a good year’s work. Also of note is the trivial benefits rule, whereby gifts of up to £50 in value (including VAT) are not taxed. The gift cannot be cash and cannot be in exchange for work or performance.

This all seems straightforward enough. Why, then, does the Ghost of Christmas Parties look so forlorn? Well, with the restrictions in place on gatherings of people indoors, an in-person Christmas party may be an impossibility for many in the UK. Even the lowest severity tier of the restrictions will prevent most organisations from gathering into one room, and all employees must be allowed to attend in order for the party to qualify for the annual events exemption. The question that has therefore arisen is whether the party could, like most other office activities this year, move online. While a virtual party might be hard to imagine, some have suggested that an online event with ‘live’ music or similar entertainment such as a quiz could take the form of a usual Christmas party, and thus benefit from the same tax exempt status. A number of pitfalls present themselves, however: firstly, the employer would need to monitor attendance in order to satisfy themselves that the cost per head fell within the limits to qualify for the exemption. Secondly, events must generally be held in a location, and it is not immediately clear whether ‘the internet’ qualifies as a single location. Thirdly, food and drink are normally a key aspect of these social events, and how exactly these are to be delivered to workers responsibly partying from home raises questions about what would count as part of the party and what wouldn’t. If food is sent out as a hamper or similar arrangement, it risks being seen as an unrelated gift since the employees would get the goodies and then could simply skip on the ‘party’. If they are allowed to provide their own food and drink and then claim the money back after the fact, the risk is that the meals are seen as an unconnected expense which are not covered by the annual event exemption. These concerns have many people (as well as our first tax-minded ghost) worried about what will happen for Christmas 2020 celebrations.

However, on 20 November, HMRC thought long and hard about the issue, and has presented us with its solution. Firstly, they confirm that virtual parties will benefit from the annual parties exemption in exactly the same way as an in-person party, with all the same rules applying in terms of cost per attendee and availability of the party to all employees. Specifically, the costs of “food, entertainment, equipment and other expenses which may be incurred in hosting a virtual event, will be exempt” subject to all the normal conditions of course. Good news then, for our morose phantom. However, this still leaves us with the logistical problems of ensuring that attendance is properly monitored in order to ensure that the exemption is met. Once that has been taken care of though, the only problem that remains is actually making sure that the ‘virtual party’ is actually worth attending for the employees! That, however, is beyond our jurisdiction.

Appeased, the Ghost of Christmas Parties can return to its rest, until next year when it will return to stalk the places of employment of the living once more. It leaves us with a warning to expect the Ghost of Christmas Presents next week, which will help us to examine the oft-fraught issue of taxation on gifts.


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