What’s Tax-Deductible for Your Staff Christmas Party?

It’s that time of year again! Many businesses are getting ready to thank their teams for a year of hard work with a Christmas party or festive get-together. It’s a lovely tradition - and it can also be tax-efficient, provided you know the rules.

Here’s a simple guide to what HMRC allows when it comes to Christmas staff entertaining.

1. The £150 Christmas Party Rule

HMRC has a special exemption that can make your staff Christmas party completely tax-free - for both your business and your employees - if you stick to a few conditions.

To qualify:

🎄 It must be an annual event (like a Christmas or summer party).🎄It must be open to all employees (or everyone at a specific site).

🎄 The cost must be no more than £150 per head, including VAT.

🎄Each employee can bring a plus one with them (if the company chooses to allow partners).  Each guest will also be eligible for the £150 a head

That £150 limit includes everything - food, drink, transport, entertainment, even the decorations if they’re part of the event!

Tip: It’s an exemption, not an allowance. So if your party costs £151 per head, the whole amount becomes taxable - not just the £1 extra.

2. Working Out the Cost per Head

To see if you’re within the £150 limit, divide the total cost by the number of people attending - this includes employees and any plus ones they may bring with them. 

Example:

🎄Total cost: £3,000

🎄20 staff + 10 guests = 30 attendees

🎄£3,000 ÷ 30 = £100 per head

You’re in the clear!

3. If You Have More Than One Event a Year

If you hold more than one annual event - say, a summer barbecue and a Christmas do - the £150 limit applies to the total cost of all events.

If the combined total goes over £150 per head, you can choose which events to count under the exemption. Just make sure the total you claim as tax-free doesn’t exceed £150.

4. Going Over the Limit

If the party costs more than £150 per head or isn’t open to everyone, it doesn’t qualify for the exemption. That means the whole cost becomes a taxable benefit for those who attend.

You’ll then need to report it on a P11D or include it in a PAYE Settlement Agreement (PSA) if you’d rather cover the tax on behalf of your staff.

5. What About Virtual Parties?

HMRC has confirmed that virtual events can still qualify, as long as they meet the same conditions - they’re annual, open to all, and cost under £150 per person. So if you’re sending out food and drink hampers for a Zoom celebration, you can still make use of the exemption.

6. Tax Relief for Employers

The cost of staff entertaining is 100% deductible, unlike client entertaining which is not a tax deductible expense.

7. Don’t Forget Staff Gifts

If you’re giving out small presents like vouchers, wine, or hampers, these can often be treated as trivial benefits, separate from the party exemption.

To qualify, the gift must:

🎄Cost £50 or less,

🎄Not be cash or a cash voucher,

🎄Not be a reward for work performance, and

🎄Not be part of a salary sacrifice scheme.

In Summary

A bit of planning goes a long way in keeping your Christmas celebrations tax-free. As long as your party costs no more than £150 per head and everyone’s invited, you can relax and enjoy the evening - knowing HMRC won’t be sending you a surprise bill in the new year.

If you’re unsure how the rules apply to your business or you’d like help working out what’s claimable, we’re happy to chat it through.

Get in touch with our team -

we’ll help you make sure your Christmas party is merry, bright, and tax-efficient! 🎅