Work Christmas party: the HMRC £150 rule explained

UK employers can put on a Christmas party or summer do for staff without it counting as a taxable benefit, as long as it meets three conditions. The rule is simple, but one detail catches many businesses out: £150 is a cliff edge, not an allowance.

The three conditions

According to GOV.UK, a party or similar social function is exempt from tax, National Insurance and reporting if it:

• is annual, such as a Christmas party or summer barbecue (a one-off celebration does not qualify);
• is open to all your employees (or all staff at one location, if you have several sites); and
• costs £150 or less per person.

The same rules apply to online or virtual parties. If you run separate parties for different departments, they still qualify as long as every employee can attend one of them.

How to work out the cost per head

Add up the total cost of the event and divide by the number of people who attend, not just the number of employees. In HMRC's technical guidance:

• The cost includes VAT, even if your business can reclaim it.
• It includes everything connected with the event: venue, food, drink, entertainment, and any transport or overnight accommodation you provide.
• Guests such as partners count as attendees, so they are in the head count, and their share of the cost is attributed to the employee who brought them.

Example: a party for 40 people (30 staff and 10 partners) costs £5,000 plus VAT, so £6,000 in total. That is £150 per head, exactly on the limit, so it is exempt. Add a £300 taxi bill and it becomes £157.50 per head, and the exemption is lost.

The staff party £150 tax-free calculator works this out for you, and the event VAT calculator helps when supplier quotes are given without VAT.

It is a threshold, not an allowance

If the cost per head is £150.01, the exemption does not cover the first £150. The whole cost becomes a taxable benefit. You must then report it on each employee's P11D and pay Class 1A National Insurance on the full amount (GOV.UK: what to report and pay). Many employers choose to settle the tax through a PAYE Settlement Agreement so staff do not face a tax bill, but that costs the business more.

So build in a margin. Final bar tabs, extra guests dropping out (which raises cost per head) and late add-ons can tip an event over.

More than one event a year

The £150 is a total per head for all qualifying annual events in the tax year (6 April to 5 April). If a summer barbecue costs £40 per head and the Christmas party £100, both are exempt because the combined £140 is within £150. If the Christmas party were £120, the combined £160 is over, so you can use the exemption for the event that makes best use of it (the £120 party) and the £40 barbecue becomes fully taxable.

What does not qualify

• Events only for directors or senior staff, since they are not open to all employees.
• One-off celebrations, such as a company anniversary, which are not annual.
• Events offered as part of a salary sacrifice arrangement, which must be reported.

Client entertaining is a separate area with its own rules and is generally not tax-deductible for the business.

Quick checklist

• Is it a regular annual event, open to all staff?
• Have you included VAT, transport and accommodation in the total?
• Have you divided by everyone attending, guests included?
• Is the combined cost of this year's annual events £150 per head or less, with a safety margin?

Free tools: staff party £150 tax-free calculator · event VAT calculator · table seating calculator

Written with AI assistance and checked against GOV.UK guidance. General information, not financial, tax or legal advice.