Statement from HMRC
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.
The rules allow employers to spend up to £150 per head (including VAT) towards the costs of an annual function such as a seasonal party, without creating a tax liability.
To qualify the party must be an annual event which is open to all staff generally, or all staff at a specific location, if the employer has more than one location.
If the employer has more than one annual event in a tax year, for all the events to be tax-free the combined cost per head must be no more than £150.
For further reading
You can find further details on the tax rules regarding Christmas parties and other staff functions and entertainment here.
You can find further details on making tax-free gifts to employees here.
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