HMRC have updated their manuals to include virtual events within the annual party exemption when assessing Benefits In Kind.
Tax and staff parties
A staff party or an annual function qualify as a tax-free benefit for your employees providing that you meet the following conditions:
- It must be a recurring annual event, not a one-off.
- The total cost must not exceed £150 per head, per year.
- £150 includes VAT together with any extra costs such as transport and accommodation.
- The £150 is a limit and not an allowance: if the cost is £151, the whole benefit is taxable.
- The event must be primarily for entertaining staff.
- The event must be open to all staff (in that location, if you have several branches or departments).
- The event is not just to be for directors unless all your staff are directors.
- The cost of the whole event is an allowable expense for your business.
- You can claim back input VAT but this may be restricted where you are also entertaining customers.
An employer may spend up to £150 per head (inclusive of VAT) per year, in providing annual functions and events to entertain its staff.
Provided the £150 limit is not exceeded, there can be any number of parties, for instance, three parties at a cost of £50 each at various times of the year.
Virtual parties
HMRC has updated their guidance to include virtual annual functions within this exemption. Virtual parties cannot have all employees in a single location so would ordinarily fail to qualify. HMRC's revised guidance allows these events to qualify, provided that all of the other criteria are met.
A virtual party is defined as:
- An annual function provided virtually using IT.
An example of this:
- A company holds it's annual function virtually using IT.
- All employees are invited.
- A hamper of food and drink is provided to each employee to enjoy during the party.
- The total cost is £100 per head.
The cost is less than the £150 per head maximum and so the function is tax-exempt.
Useful guides on this topic
Tax-free benefits & perks
More details on the employee benefits that are not taxable.
Staff parties and annual functions
A guide to whether the staff party is a tax free-benefit.
P11Ds: top tips tool kit
A checklist for employers preparing P11Ds.
External links
HMRC internal manual: s.264 ITEPA 2003
HMRC internal manual: s.264 ITEPA 2003 examples
