Is the Christmas party tax exemption £150 plus VAT?

No. The £150 limit is inclusive of VAT. When calculating the cost per head, include VAT as well as related costs such as venue hire, food, drink, entertainment, transport, accommodation and service charges. If the final cost exceeds £150 per attendee, the exemption may not apply to that event.

Does the £150 exemption apply to virtual Christmas parties?

A virtual Christmas party can qualify if it is an annual event, open to all employees or all employees at a particular location, and the total cost does not exceed £150 per head. Costs might include activity kits, delivery, online entertainment and VAT. Cash gifts or general vouchers are treated differently and may not qualify.

Can we give employees £150 instead of holding a party?

No. The exemption applies to annual staff events, not cash payments. Giving employees £150 in cash would normally be taxable earnings. Vouchers and gifts have separate tax rules, including the trivial benefits exemption in some cases, but they are not the same as the annual party exemption.

What happens if employees do not attend after we have paid?

The cost per head is usually calculated using the number of people who actually attend. If many employees drop out, the per-head cost can rise and may exceed £150. To reduce risk, manage RSVPs carefully, choose flexible supplier terms where possible, and keep a budget buffer below the limit.

Can directors use the Christmas party exemption?

Directors can be included where the event is open to all employees or all employees at the relevant location and the other conditions are met. A directors-only dinner is unlikely to qualify because it is not open to staff generally. Close companies should take particular care and get tax advice if unsure.

Do we need to report the party to HMRC if it is under £150 per head?

If the annual event qualifies for the exemption and the cost is no more than £150 per head, it usually does not need to be reported as a taxable benefit. Keep clear records of invitations, attendance, invoices and calculations in case you need to evidence the treatment later.

The £150 Christmas Party Tax Exemption Explained

A practical UK guide to the annual party exemption, what counts towards the £150 limit, and how to keep your event compliant.

5 min read

The short answer

The UK Christmas party tax exemption lets employers provide an annual event costing up to £150 per head, including VAT and related costs, without creating a taxable benefit for employees. The event must be annual, open to all staff or all staff at one location, and the £150 limit must not be exceeded.

What is the Christmas party tax exemption in the UK?

The Christmas party tax exemption in the UK is part of HMRC’s rules for annual staff functions. It allows an employer to hold a Christmas party, summer party or similar annual event without employees paying tax on the benefit, provided the event meets specific conditions.

The key figure is £150 per head, including VAT. This is not an allowance you can automatically spend tax-free on every employee. It is an exemption that applies only when the event qualifies.

To qualify, the event must be:

An annual event, such as a Christmas party or summer party
Open to all employees, or all employees at a particular location
Costed at no more than £150 per head including VAT
Paid for by the employer, not reimbursed as general cash or vouchers

If your company is planning a festive event, it is worth understanding these rules before deposits are paid. For wider planning considerations, see our Corporate Christmas Party Planning Guide.

The £150 figure is a hard limit, not a tax-free contribution. If the event costs £151 per head, the whole amount can become taxable, not just the extra £1.

How does the £150 per head limit work?

The £150 limit is calculated by taking the total cost of the event and dividing it by the number of people attending. This includes employees and any guests or partners invited.

For example:

Venue hire: £1,200
Food and drink: £4,800
Entertainment: £1,000
Transport home: £800
VAT and service charges included in the above
Total cost: £7,800
Attendees: 60
Cost per head: £130

In this example, the event is within the £150 limit. If the other conditions are met, the exemption can apply.

Now compare this with:

Total cost: £7,800
Attendees: 50
Cost per head: £156

This exceeds the limit. The exemption would not apply to that event, and the full £156 per attendee may need to be reported as a taxable benefit, unless dealt with through a PAYE Settlement Agreement.

Costs normally included in the calculation are:

Food and drink
Venue hire or room hire
Entertainment, activities or performers
Event production, theming or equipment
Transport or accommodation provided as part of the event
VAT
Service charges and delivery fees

Typical Christmas party budgets vary widely. A simple drinks and canapés event might sit around £40–£80 per head, a private dining or activity-led event might be £80–£140 per head, and more premium events can easily exceed £150 per head once drinks, transport and VAT are included. For more detail on realistic cost planning, see Christmas Party Budget Per Head: What UK Companies Spend.

Who must be invited for the exemption to apply?

The event must be open to all employees. That does not mean every employee has to attend, but they must have the opportunity to attend.

For a single-site business, that usually means all employees should be invited. For a business with several offices or operational locations, the exemption can still apply if an event is open to all employees based at one location.

Examples that are likely to meet the availability condition include:

A Christmas party open to all UK head office employees
Separate regional events, each open to all employees at that site
A company-wide event where remote workers are also invited
A departmental event only where all staff in that location are invited and other locations have equivalent access to annual events

Examples that may cause problems include:

A directors-only Christmas dinner
A party for the sales team only, with no comparable event for others
Inviting permanent staff but excluding fixed-term employees without clear reason
Offering the event only to senior managers

Employers should be particularly careful with hybrid and remote teams. If people work from home permanently or are based far from the office, consider whether they are genuinely able to attend. Practical steps include giving enough notice, choosing an accessible location, offering reasonable travel support where appropriate, or running regional events.

Can partners and guests be included?

Yes. Non-employee guests, such as partners, spouses or clients, can be included in the headcount calculation where they attend the event. Their costs are also included in the total event cost.

For example:

40 employees attend
20 partners attend
Total attendees: 60
Total event cost: £8,400
Cost per head: £140

This can still fall within the exemption if the event is annual and open to all relevant employees.

However, inviting guests can push costs up quickly. If you are offering a plus-one, budget for:

Additional food and drink
Larger room capacity
Higher staffing or security costs
Extra entertainment or activity capacity
Travel or accommodation if provided

If your budget is close to the £150 threshold, you may decide to keep the event employee-only, subsidise travel separately only where it is part of the event cost calculation, or choose a lower-cost format such as daytime activities, festive lunches, shared parties, or team building events. Rocket Fuel lists a range of corporate events, including team building options that can work well as lower-cost Christmas formats.

What happens if you hold more than one annual event?

The exemption can cover more than one annual event in the same tax year, but the combined cost of the qualifying events must not exceed £150 per head.

For example, if you hold:

Summer party: £65 per head
Christmas party: £80 per head
Combined annual event cost: £145 per head

Both events can be covered by the exemption, assuming the other conditions are met.

If you hold:

Summer party: £70 per head
Christmas party: £110 per head
Combined cost: £180 per head

You cannot simply exempt the first £150. Instead, you choose which event or events qualify. In this case, the Christmas party at £110 could be exempt, but the summer party at £70 would be taxable, or vice versa, depending on what gives the best outcome.

This is why it helps to keep a running annual events log. Record:

Event name and date
Whether it is annual or one-off
Who was invited
Number of employees and guests attending
Total cost including VAT
Cost per head
Whether the exemption was applied

This record is useful if finance, payroll or your accountant needs to check the position at year end.

What if the party costs more than £150 per head?

If the cost is more than £150 per head, the exemption does not apply to that event. The full cost per head may become a taxable benefit for employees who attend.

Employers usually deal with this in one of two ways:

Report the benefit on employees’ P11D forms, where applicable
Use a PAYE Settlement Agreement, often called a PSA, so the employer pays the tax and National Insurance on behalf of employees

Many employers prefer a PSA for Christmas parties because it avoids employees receiving an unexpected personal tax charge after attending a work event. A PSA must be arranged with HMRC and has deadlines, so it should not be left until the last minute.

To reduce the risk of going over the limit, build the budget from the full cost rather than the headline menu price. Ask suppliers to confirm:

Whether prices include VAT
Whether service charge is compulsory
Minimum spend and room hire conditions
What is included in drinks packages
Whether entertainment, cloakroom, staffing or security costs are extra
Cancellation and final-number deadlines

It is sensible to budget to around £135–£145 per head if you want a buffer. That leaves room for small changes in attendance, late supplier additions or service charges.

Practical checklist for keeping your Christmas party tax-compliant

Use this checklist before signing contracts or confirming final numbers.

Confirm the event is annual

A Christmas party, annual dinner or summer party can qualify. A one-off reward event usually will not.

Invite the right group

Make sure the event is open to all employees, or all employees at a particular location.

Calculate using total cost including VAT

Include food, drink, room hire, entertainment, transport, accommodation and service charges where provided.

Divide by actual attendees

The per-head cost is normally based on those who attend, not everyone invited. Low turnout can push the cost per head over the limit.

Track guests properly

Include partners and other guests in both the cost and attendee count.

Check other annual events in the same tax year

If you also held a summer party or annual staff event, check the combined total.

Keep evidence

Save invitations, attendance numbers, invoices and calculations.

Speak to payroll or your accountant before the event

If the cost is likely to exceed £150 per head, agree how any tax will be handled.

A little planning can prevent an awkward surprise later. The safest approach is to design the event around a realistic all-in budget, keep attendance assumptions conservative, and document the calculation clearly.

Frequently asked questions

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