We’re coming up to that time of year, where we’d usually be organising a boozy Christmas lunch or putting on a staff party to end the year in celebration. It goes without saying, things are looking a little different this year. Since we’re currently in a second lockdown and in-person events aren’t likely to be possible, you may be looking at how you can recreate a proper festive bash with your team online. 

The short answer is: it’s do-able and tax deductible. But you’ll need to be a little smarter about how you go about it. 

Here are the rules to help you host a tax deductible Christmas party on Zoom

 

You may be able to take advantage of the Annual Function Exemption

This is the exemption you’ll likely be used to hearing about. 

The Annual Function Exemption means you’ll have £150 per head to spend on all employees without having to report anything to HMRC or pay tax and National Insurance. As standard, this does not include non-employees (clients, former employees, friends and families). Caution: If you spend over the limit, you will have to cover the tax and national insurance for all the costs – not just the amount over the limit. 

  • The £150 per head exemption covers all end-to-end costs, including VAT
  • The event must be open to all employees
  • If you want to run several events (because you have several offices, locations or departments), all employees must be able to attend one of them. 

 

So how does this apply to an online event?

To be eligible for this exemption when running a virtual event, you’ll need to figure out a way to collect data to prove attendance at an online Christmas party. The fun way to do this is to take a screen shot with everyone present. If you have too many employees for that to work then try some sort of a sign in sheet.

When it comes to food and entertainment, tricky as it may seem when you’re not in the same room, you still have some options. You could hire an entertainer (like a musician or a comedian) or speaker to make an appearance. 

Staff can of course eat and drink in their own homes, though you may want to set a budget for food and drink if you’re planning on incurring the cost. You could have employees reclaim the costs incurred as expenses, but again, you will need to be able to demonstrate these expenses were due to a Christmas party and not another occasion. 

We are arranging a Christmas crafting session with an external supplier lined up to do a demo, and will be delivering a box with the craft items and a bottle ahead of time.

 

Instead, you could provide your staff with a gift 

If collecting data and proving your online Christmas party seems like too much of a hassle, you could simply give staff a gift under the Trivial Benefits rule

This allows you to provide a gift to each member of staff up to the value of £50 plus VAT, without having to pay any tax on it. Just be aware, this gift cannot be cash or a voucher that can be exchanged for cash – and it can’t be an exchange for work or a commission for performance. 

Note: these two rules can work together, if you want to invite staff to a virtual Christmas party and give a gift (provided you meet the criteria of each exemption as detailed above).

 

Be smart and track your expenses

Whatever you decide to do to make December merry and bright, make sure you’re tracking your expenses in Xero. You may find it’s the little things that add up (gift bags, cards etc) if you’re not careful, and take you over the allocated spending per person. 

If you have any questions about any of the above, we’ll do our best to answer them. It’s a strange time for us all, but there’s always opportunity to spread a little joy. Cover the home office in the tackiest of tinsel, and have a fab one. Cheers!