Contractors’ Questions: Now covid has cancelled my Christmas party can I move it to the Spring?

Contractor’s Question: London going under lockdown puts the kibosh on my Christmas dinner which I’d booked for December 1st. My book-keeper, who was going to attend the dinner, says the relevant £150 allowance from HMRC is for the full tax year. So does that mean we could move the meal to Spring 2021, if I’m correct in thinking the tax year runs until April?

My only worry is the fact that the event must apparently be something that the company does annually to not come unstuck with HMRC. I fear we move the Xmas dinner to Spring and that could arouse HMRC’s interest, as we’ve never had my company’s annual celebration in the Spring before. Or is covid-19 cause for an exception that HMRC will likely accept? Finally does the Christmas event have to be a meal, or could we look at other items?

Expert’s Answer: As was explained to a similar ContractorUK reader to you last month, Section 264 ITEPA 2003 exempts the costs borne by an employer in providing some sort of social gathering for employees, if certain conditions apply. 

These conditions are, broadly, that annual events open to all employees can be exempt if the total cost to the employer, including VAT, is not more than £150 per ‘attendee’ (rather than just per ‘employee’). If multiple events occur, they can be fitted into the exempt £150 amount to best obtain relief. Those events which cannot be fitted into the exemption are taxed via the benefit-in-kind rules as usual. The £150 is not an allowance to use (I point this out as you describe it as an allowance), but an exemption that costs can qualify for.

'Yes' to both your observations

So, your situation seems to be fairly straightforward. You have one event, which I’m assuming is normally an annual Christmas or end of year celebration, albeit with some possible variables. 

As the exemption is for a tax on employee benefits, then yes, the personal tax year to April 5th is indeed relevant. So an event before the end of the tax year might be able to take advantage of the exemption not used in this case around Christmas.

The guidance from HMRC is that the event has to be annual. I think that in the current circumstances, moving an event that is still open to all employees to a different time of year would not be seen by HMRC as an abuse of the exemption, and should be treated in the same way as the Christmas party costs would have been.

Get in and out before April 6th

Please note though, one-off events are not allowed – so make it clear that the Spring event is an amended version of the usual Christmas party. Just make sure that the event is completed before April 6th, if you want to use the 2020/21 exemption -- or it will be lost.

As to what costs can be exempted, the total cost of the event that the employer meets is the critical test. So, if the employer is only meeting costs which total less than £150 per attendee, then those costs should qualify for the exemption. As I’ve advised previously, make sure that the company credit card is left in a safe place, to ensure that as the evening wears on, no one gets tempted to buy a round on the company, if that will take the cost per head to over £150 – when full tax would apply to the whole event.

The expert was Chris James, director of accounting services at contractor payroll and accountancy firm JSA Services.