How to ensure 2020’s parties are as tax efficient as possible!

Christmas parties can’t take place as normal this year, and so companies are looking at alternatives so they can still hold some form of social function for their staff, with many opting for virtual gatherings via Zoom or Teams.  Whilst we’re not saying that tax should be your first thought when it comes to rewarding staff at the end of a testing year for most, it would still be prudent to ensure your plans, whatever they might be, are as tax efficient as possible.

The main conditions of ensuring you stay on the right side of HMRC are:

  • making sure all staff are invited;
  • keeping the cost per head less than £150 (it should be somewhat easier to remain under budget this year!).

HMRC allows £150 per head per year on social events for staff, and this year is no different.  If the £150 budget is exceeded, this can be charged as a benefit and the company should then consider making a PAYE Settlement Agreement with HMRC to cover the additional liability arising.  You can spend the £150 per head as you wish, and this year many companies are choosing to send food and drink out to staff for them to enjoy during an online party, which seems a good option.

If a virtual party isn’t viable, or you are not keen on the idea, you may give staff a gift instead, but there are some rules to bear in mind if this is what you decide to do, which are:

  • the cost of such a gift cannot exceed £50;
  • the benefit can’t be cash or a cash voucher;
  • the employee isn’t entitled to the benefit anyway as part of any contractual obligation; and
  • the benefit isn’t provided in recognition of any particular work carried out.

If the individual benefit exceeds £50 (or an average of £50 per head, inclusive of VAT), the whole amount is taxable as a benefit in kind, not just the excess over £50.

We hope this gives some clarity around how to best organise your 2020 Christmas social, and we hope your party goes well, whatever you might choose to do.

Finally, may we wish you a Merry Christmas and a Happy and Healthier 2021.

If you need any specific advice about this subject, or any other tax or accountancy issue, please don’t hesitate to get in touch with us via enquiries@friendllp.com.