HMRC has confirmed that "virtual" Xmas parties are included in the exemption to tax where an employer hosts an annual event, under Section 264 of ITEPA2003.
This exemption is for an annual event, made available to all employees at a cost of less than £150 per head.
All costs of providing the event must be included when calculating the cost per head including entertainment, food and drink, and VAT, but remember if the cost is exceeded then the whole amount becomes taxable.
HMRC have included this example in their Employment Income Manual
"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."
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