Spreading Christmas Cheer during Covid. It can be tax-free if you do it properly
So what are we doing for Christmas this year? When is the staff Christmas party? These are the kind of questions that are bound to crop up this year in businesses of all sizes.
Have you, as the employer, planned anything so far? Shall we look at the tax implications of organising and paying for the annual celebrations organised in the spirit of Christmas during Covid?
The cheerful news is that employers can take advantage of the “annual function exemption” which means no tax or national insurance contributions are payable on costs relating to any social events organised for employees.
There is a limit of £150 per attendee (including non-employee guests like, say, spouses) each year. However, if this limit is breached, you as the employer will be required to pay the tax and NIC for all of the cost, not just the difference and that includes, by the way, the VAT element.
The one condition attached to this exemption is that the event has to be open to all employees to attend.
With social distance distancing restrictions and non-availability of suitable venues, it’s unlikely that any physical events are going to be taking place this side of Christmas to which all employees can be invited – whether you are a small business with only a few employees or a large business with many employees.
So can you hold an online or virtual event and would that qualify under the annual function exemption?
We believe any function held online should qualify but you will need to demonstrate that it is open to all and, be able to show exactly who did attend. You will need the exact number to ensure that the total cost does not exceed £150 times the number who attended.
You could and, if it is a Christmas function, should also consider providing or covering the cost of providing any food, drink or even online entertainment like hiring a musician or a comedian to perform during your virtual event
Even though the legislation doesn’t say it, it would point towards a structured social event if you as the employer actually ordered and paid for the food and drink to be delivered to the homes of your employees for this social event.
The possibilities for having a really cheerful virtual Christmas party without the taxman making you pay for the benefit provided to your staff even during Covid are endless without even considering the trivial benefits rule which I will write about on another occasion.