Employers are grappling with some difficult questions about how to hold Christmas events this year and what the tax implications of their decisions might be.

What is known as the annual function exemption generally means that no tax or NICs are payable on costs relating to annual social events organised for employees. There is a £150 per head limit on party costs and the event must be open to all employees to attend. Generally it must also take place in one location.

There has been some doubt as to how these rules will apply in the current climate:

- How can employers hold a Christmas party and observe social distancing restrictions; and

- Does hosting a virtual event meet the one location requirement?

Fortunately, HMRC have confirmed (in an announcement to ICAEW on 20 November 2020) that an online meeting will qualify as a location and therefore that virtual parties for employees can attract the tax exemption.

With the COVID-19 pandemic scuppering most in-person festive plans this year, this should be welcome news for employers and employees alike.

However, employers should consider that they might need to demonstrate attendance at the online event in order to qualify for the exemption.