Go online for your Christmas party – it’s tax free!

7 December, 2021

With the latest Covid variant making people think twice about face to face events, the Association of Taxation Technicians (ATT) is reminding employers that ‘virtual’ Christmas parties can qualify for the usual tax-free treatment available to in-person events.  

Existing rules allow employers to spend up to £150 per head (including VAT) on an annual function, or functions, such as a Christmas party without creating a tax liability for their employees and themselves – provided that certain conditions are met.1 Last year, HMRC helpfully confirmed that ‘virtual’ parties such as quizzes, food tastings, cooking lessons or ‘live’ entertainment, together with ‘party boxes’ containing supplies of food, drink and other favours can also qualify for this useful tax exemption.

Michael Steed, Co-Chair of the ATT’s Technical Steering Group, said:

“Sometimes the tax system can act as a bit of a Santa Claus elf for employers.

“HMRC’s confirmation last year that ‘virtual’ parties are within the scope of the tax relief available for in-person events was very welcome and - unlike some other Covid reliefs - this was not just a one-off for 2020. As HMRC considers that ‘virtual’ parties are within the scope of the existing rules, employers can choose whether to go online, or hold them in person without worrying about triggering an unwelcome tax bill.

“While we hoped to be back to normal celebrations this year, we know that concerns about the Omicron variant have affected some employers’ plans. It is hopefully a small comfort to know that moving an event online does not have to cause tax issues for either the employer or their staff.”

Notes for editors

  1. For a social event for employees to qualify for income tax exemption it must be an annual event (for example a Christmas or summer party) which is open to all staff generally - or all staff at a location, if the employer has more than one location. No liability to tax arises provided that the total cost of the event including VAT, travel and accommodation is no more than £150/head. 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 of all the events must be under £150.
  2. HMRC’s Employment Income Manual includes confirmation that virtual events can qualify for the same tax-reliefs as in person events.