As the festive season approaches, many businesses are starting to plan their annual Christmas celebrations – a well-deserved chance to thank teams for their hard work throughout the year. But before you book the venue and pop the champagne, it’s worth checking that your event qualifies as tax-free.

The £150 per head rule

HMRC allows you to spend up to £150 per person (inclusive of VAT) each year on annual staff events, completely tax-free. This covers food, drinks, entertainment, and even transport home – and it applies to all employees and directors.

It’s important to remember that the £150 allowance is all or nothing. Go even a penny over, and the full amount becomes taxable. To qualify for the exemption, your event must:

• Be open to all staff (not just directors or certain teams).
• Be an annual event, like a Christmas party or summer BBQ.
• Stay within £150 per person, including all associated costs.

If your business has multiple locations, you can hold separate events for each one, as long as every employee is invited to at least one.

Multiple events throughout the year

You’re not limited to just one event per year. You can host several – for example, a summer party and a Christmas get-together – provided the combined total doesn’t exceed £150 per head (inclusive of VAT).

For instance:

• A summer BBQ at £70 and a Christmas dinner at £75 = £145 total – both tax-free.
• A summer BBQ at £80 and a Christmas party at £90 = £170 total – only one can be tax-free.

What happens if you exceed the limit?

If your total spend goes over £150 per person, the entire cost becomes a taxable benefit. That means:

• You’ll need to report it to HMRC.
• Employees will pay income tax on the value.
• The company will also pay National Insurance.

Alternatively, the employer can choose to meet the cost on behalf of employees by reporting the expense under a PAYE Settlement Agreement (PSA), meaning staff won’t have to pay tax on the benefit directly.

To avoid unexpected costs, make sure to plan and budget carefully.

Our advice

• Plan early – Confirm guest numbers before committing to costs.
• Include everything – Food, drinks, entertainment, travel, and extras all count.
• Keep records – Hold onto receipts and attendance lists in case HMRC requests them later.

When planned properly, your staff celebration can be both tax-efficient and a great way to recognise your team’s achievements.

If you’d like tailored advice on how these rules apply to your business, or support with year-end planning, get in touch with your local bk plus advisor.