Related Links

BrassTax news

Christmas comes but once a year

But what if you have a firm's "do" only every second year?

ITEPA s264 is the "Christmas party" exemption – it provides limited relief from Income Tax in respect of the "benefit" of an annual party (or other annual function) provided to employees. But what is the significance if any of the word "annual"?

HMRC's "Customer (Harrumph!) Adviser Guide" asserts that "the event must take place every year to be an annual function", and we are aware of cases in which HMRC has sought to deny relief on the basis that the event in question has not historically taken place every year.

This is, of course, a barking mad interpretation of the legislation; Parliament cannot possibly have intended that the law would differentiate between an employer who provides a party year in year out and one who provides one biennially. Nor can it have been intended that tax relief would be denied on the first occasion a Christmas party is provided (for it cannot be known at that time that such a party is "annual") but afforded in respect of subsequent years. And what does "every year" mean? Do parties cease to take place "every year" if you have missed one year in the last ten? Or five? Or three? Answer came there none.

However, even HMRC's misconceived view of the law does not require the event to be at the same level every year; nor does the event need to be held at the same time every year. It is presumably sufficient merely to hold an event in the nature of a party or similar event every twelve months. So, if this year's difficult circumstances led you to cancel the usual party, inviting staff to a plateful of Twiglets* and a glass or two of flat warm fizzy lemonade this month might avoid a sterile argument about whether next year's more generous party is capable of benefitting from the exemption.

For further advice (and in particular if you find yourself on the wrong end of HMRC's increasingly bizarre views), please contact david.whiscombe@bkltax.co.uk

*Other snacks are available (and most of them are more palatable).