As the dark nights draw in, plenty of businesses are planning Christmas parties or staff celebrations. These are a great way to thank your team for their hard work and end the year on a high.
Some of these events can be tax free if they meet HMRC’s criteria, while others may trigger a taxable benefit without the right planning. The good news is that there are clear exemptions for annual events and small staff gifts – if you stay within the rules.
Read on to see how to keep your party plans compliant and your tax bill in check.
The £150 per head rule
HMRC’s annual event exemption allows you to spend up to £150 per person (including VAT) on annual staff events such as a Christmas party or summer BBQ without creating a taxable benefit for employees.
However, this isn’t an allowance, it’s an exemption. If you go even £1 over the limit, the entire amount becomes taxable, not just the excess.
The £150 limit can cover more than one event in a tax year (for example, a Christmas party and a summer social) as long as the combined cost per head stays below £150.
To qualify, your event must:
- Be annual (not a one-off celebration).
- Be open to all staff or to all staff at a specific location.
- Cost £150 or less per person, including VAT.
If clients or other guests attend, the VAT reclaim may be restricted.
Combining parties and gifts
If you also like to give small staff gifts, the trivial benefits exemption allows gifts up to £50 per head without tax or National Insurance, provided the gift isn’t cash or a cash voucher.
This can work well alongside your annual party exemption. For example, you could host a Christmas party under the £150 limit and send each staff member a small gift or hamper worth up to £50, all tax-free.
For directors of close companies, the total value of trivial benefits they can receive tax-free in a year is capped at £300. For those unfamiliar with the term, ‘close companies’ are a limited company that is controlled by five or fewer “participators” (which includes shareholders and loan creditors) or by its directors.These companies are often small, owner-managed or family businesses.
Going over the limit
If the cost of your event exceeds £150 per head, the whole amount becomes taxable as a benefit-in-kind for employees.
To prevent this from affecting staff directly, you can agree a PAYE settlement with HMRC, where the company pays the tax and National Insurance on behalf of the employees.
While this increases the overall cost, it helps preserve goodwill and avoids unexpected tax bills for your team.
Don’t forget your remote team
HMRC also accepts virtual celebrations under the same rules. If your team works remotely, you can still claim the exemption by hosting an online event and sending meal kits or tasting samples (up to £150 per person including VAT). The same conditions apply; it must be open to all staff and held as an annual event.
Key takeaways
- The £150 limit is an exemption, not an allowance
- You can combine multiple events as long as the total stays under £150 per head
- Small gifts under £50 per head can also be tax-free
- Virtual events qualify if they meet the same conditions
- Exceeding the limit makes the whole amount taxable
Planning a festive celebration this year? The rules can be complex, but a little preparation keeps things compliant and cost-effective.
If you want to make sure your staff events or gifts qualify for the right tax treatment, our team at SeavorChartered can guide you through the details. Contact us here.
