December 23, 2020
Topics  
by  Pradeepan Velayuthan

HMRC accepts Virtual Christmas Parties!

Merry Christmas!

It is that time of the year again, but not like other years.

Christmas is not the same this year. Every year there are big celebrations and the whole country is upbeat during this festive period however this year, the UK is in a sombre mood.

The biggest culprit being Coronavirus but let us not forget Brexit too. There is a lot of uncertainties and the ban on gatherings (rightly so) has painted a glum picture during Christmas Celebrations.

However, there has been one gift granted by HMRC. No, it is not extra taxes nor is it April fools. HMRC have confirmed that Virtual Christmas party costs can be deducted from your Taxes. Please see below for further information.

Usually, entertainment costs are usually disallowed for Tax Purposes. An exception being that limited companies can host an annual party (or two) including Christmas party/dinner. These expenses can be deduced for your Corporation Tax.

The following rules apply:

  • It is an Annual Event – It is hosted once or twice a year and not every month or week
  • It is available for all company employees
  • The total cost per employee is capped at £150 – This includes Travel/Taxes/Food/Drinks and Entertainment
  • Aggregate on all events (if you have more than one event)
  • If this limit is exceeded on one single event, the whole cost is disallowed.

For more information, please click here.

Virtual Christmas Parties

2020 has been full of challenges and hosting a Christmas Party is near impossible. However, virtual parties have become the new norm. Many of you have decided to host your own Virtual Christmas Party. 

HMRC have confirmed they will allow the £150 exemption to Virtual Parties given the rules above are met.

The challenges concerning these are:

  • How do I prove everyone was invited?
  • What are the costs incurred?
  • Was it a Party?

It would be ideal to document the Christmas party if you plan on hosting one and claim it as an expense when filing your Corporation Tax.

Our suggestions to tackle these challenges would be:

  • Email the invitations to ALL your employees in a digital format – This will be trackable and make sure to keep a backup
  • Organise someone to be an entertainer or nominate someone to organise a quiz night or Karaoke
  • Record a section of your Virtual Party in a digital format, in case HMRC wants to audit it (You will have to get permission from all your staff to record it)
  • Send out a Christmas Hamper with food, drinks and Christmas goodies!
  • Enjoy the party without the worry of a hangover! We recommend a good shot!

These are OUR suggestions and not HMRC’s guidelines. Please click here for HMRC guidelines.

What can I do if I do not want to host a Virtual Christmas Party?

If you are not planning on throwing a virtual Christmas party, you can still give something little to your team. Please considering using the Trivial benefits options.

There are a few conditions, this can be deducted as an expense for Corporation Tax purposes. There are no tax impacts on the employees such as Benefit in Kind).

  • Cost of the benefit is £50 or less
  • The benefit is not cash or cash voucher
  • It is not a contractual obligation to provide this benefit
  • This is not provided in recognition of their services

If the benefit is provided to a director of a close company (or a member of their family or household) the benefit is limited to £300 per tax year.

Please click below for further information:

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21864

https://www.gov.uk/expenses-and-benefits-trivial-benefits

We wish everyone a Merry Christmas and a healthy 2021!

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