This year even more than usual, many businesses are thankful for the hard work and commitment of their employees. Traditionally, many companies would now be finalising plans for their office parties: anything from a night in the pub to a formal set-piece dinner and knees-up for the staff.
Where an employer holds an annual event – at Christmas or another time during the year – for all its employees, at a cost not exceeding £150 per head, the benefit is exempt from income tax for the employee (Section 264 of ITEPA 2003). The £150 is not considered an annual allowance, which means that if the cost is exceeded then the whole amount will become taxable.
All costs of providing the event must be counted when calculating the ‘per head’ cost. This could include (but is not limited to):
- Food and drink
- Transport and accommodation that enables an employee to attend
To calculate the ‘cost per head’, the total expenses should be divided by the number attending, which may also include non-employees, such as partners.
This year, HMRC has acknowledged that virtual meetings and events have to a large extent replaced face-to-face meetings and has now confirmed that virtual events can be included when deploying the £150 exemption. They have added the following simple example to the Employment Income Manual at EIM21691:
A company holds one annual function in a tax year and does so virtually using IT. All employees are invited and each is provided with a hamper consisting of some food and drink to be enjoyed by the attendees during the party. The total cost per head is £100 which is within the £150 exemption and so the exemption applies.
As well as an annual social gathering to say thank you to staff, ITEPA 2003 allows for the employer to provide what is referred to as a ‘trivial benefit’ to employees.
This statutory exemption has strict criteria that must be met in order to qualify as a trivial benefit:
- The benefit is not cash or a cash voucher
- The cost to provide the benefit does not exceed £50
- The benefit is not provided as a contractual entitlement
- The benefit is not provided in return for normal service or achievement of performance targets
Examples of a trivial benefit could include flowers on a person’s birthday, a turkey at Christmas, or a gift on the birth of a child. More than one trivial benefit can be provided during the year; however, where trivial benefits are given to a director or office holder (or members of their families or households), an annual limit of £300 applies.