Is Your Staff Christmas Party Tax Deductible?
Providing an annual party for your team is a simple way to say thank you for their hard work, and you like many businesses may choose the Christmas period for your main celebration. But did you know, HMRC allows these parties to be exempt from tax and National Insurance, as long as you follow three strict rules.
1. The cost must be £150 or less per employee
The £150 limit is an all-inclusive figure. It must cover every part of the event, including food, drinks, entertainment, venue hire, transport and any overnight accommodation. The limit applies per head, not just per employee, so if staff bring a guest, the guest’s cost must be included in the calculation.
If the final figure goes beyond £150, even by a small amount, the whole cost becomes a taxable benefit. This means each employee needs a P11D, they will be taxed on the full value of their place, and you will need to pay Class 1A NIC as the employer. Because the threshold is strict, it is worth keeping a close eye on your budget throughout the planning process. One unexpected cost can tip the entire event into taxable territory. You also cannot reclaim VAT for employee guests.
2. The event must be annual
The party does not have to be a Christmas event. A summer barbecue or any other yearly gathering can qualify, as long as it has a clear annual pattern. You can also hold more than one event during the tax year and remain exempt, provided that the combined cost per person stays at or below £150.
For example, you could spend £70 per head on a summer outing and £80 per head on a Christmas dinner and claim the full exemption. However, if one of those events exceeds the limit, that entire event becomes taxable. This rule often catches people out, so it is important to look at the total cost for the year, not just the cost of each individual event.
3. The event must be open to all employees
To qualify, the invitation must be offered to everyone on your payroll. This does not need to include former staff, but it must apply to every current employee. Events held only for management or directors will not meet the criteria.
Inviting people who are not employees, such as contractors, clients or suppliers, can also affect the exemption if the event becomes something other than a staff function. If they attend as guests of employees, the cost must still be included in the per-head calculation.
Need help with staff expenses or benefits?
If you want to make sure your upcoming Christmas party or other staff events, benefits and wider employer obligations are handled correctly, our team can guide you through the rules and help you avoid unexpected costs.
Call us on 0113 240 4100 to talk through your plans and make sure everything is set up properly, or book a call with one of our team.
Restaurants, cafes, and takeaways can benefit greatly from working with a specialist accountant. If you hadn’t noticed already, we are specialist accountants in Leeds for food service businesses, so unlike most accountants, we have years of experience working with businesses just like you. If you're interested in finding out more about how we can help your restaurant become more profitable, book a call with one of our accounting experts.
