The annual staff events exemption — £150 per head
HMRC allows businesses to spend up to £150 per head on qualifying annual staff events — including a Christmas party — completely free of income tax and National Insurance, provided certain conditions are met:
- The event must be open to all employees, not just directors or senior staff
- The total cost per head, including VAT, transport, and accommodation, must not exceed £150
- The £150 is an annual allowance — if you hold multiple events in the tax year, the combined cost per head across all qualifying events must remain under £150
The £150 limit is not a deductible threshold — it is an all-or-nothing exemption. If your Christmas party costs £160 per head, the entire amount becomes a taxable benefit in kind for every employee, not just the £10 excess. Planning carefully around the limit is therefore essential.
The cost per head is calculated by dividing the total cost of the event — including any guests brought by employees — by the total number of attendees. If partners or spouses attend, they count towards the headcount and the cost calculation.
Directors only events
A common misconception is that a directors' dinner or small management Christmas celebration qualifies for the annual events exemption. It does not, unless all employees are genuinely invited and eligible to attend. If an event is restricted to directors or a subset of the workforce, it is treated as a benefit in kind for those who attend, regardless of the cost.
Staff gifts
As well as the annual events exemption, employers can also give individual employees gifts under the trivial benefits exemption, provided:
- The cost of the gift is £50 or less
- The gift is not cash or a cash voucher
- The gift is not a reward for performance or work done
- There is no contractual entitlement to the gift
A bottle of wine, a hamper, or a gift card for a retailer (not a cash equivalent) that costs under £50 can all qualify under this exemption.
There is no limit to the number of trivial benefits an employee can receive in a year, though for directors of close companies the total is capped at £300 per tax year.
Client gifts and entertainment
The position for client gifts and entertainment is less generous. Business entertainment — which includes taking clients out for Christmas lunches or drinks — is not generally deductible against Corporation Tax, nor can the VAT be reclaimed.
Client gifts are also not deductible unless they carry a conspicuous advertisement for the business and cost no more than £50 per recipient per year. Branded merchandise such as a diary or pen set with your company logo can therefore qualify, whereas a bottle of whisky does not.
Practical steps before the invites go out
Before committing to your Christmas plans, it is worth asking:
- Is the event open to all staff?
- Have you calculated the cost per head accurately, including all associated costs?
- Are any other staff events planned this tax year that will affect the £150 allowance?
- Are any gifts you plan to give within the trivial benefits limits?
Planning your Christmas party or seasonal gifts and want to make sure you stay within HMRC's rules? Our South Wales team is happy to help you plan tax-efficiently. Get in touch today on 01443 834047, or email us info@fooks.co.uk
