Can you host a tax efficient staff Christmas Party?

Can you host a tax efficient staff Christmas Party in 2025?

As the festive season approaches, many businesses are starting to plan one of the year’s most anticipated events — the staff Christmas party, as a result a question we are often asked around this time of year is can I host a “tax efficient” staff Christmas party?

Our response is always these celebrations are a brilliant way to reward your team, boost morale, and bring everyone together after a busy year. But whilst its important to focus on the food, fun, and festivities, there’s one detail that’s easy to overlook: the tax efficiency.   We asked our Private Client Tax Partner, Adam Thompson to share with us his thoughts on running a tax efficient staff Christmas Party!

Adam added “without careful planning, your Christmas party could result in an unexpected tax bill for the business — or if you are not careful,  your employees. Fortunately, HMRC offers an Annual Event Allowance that can help you celebrate in style without triggering tax liabilities”.

Here’s everything you need to know to make your Christmas party both memorable and tax-efficient.

 

Tax efficient staff Christmas party, what is the Annual Event Allowance?

HMRC allows businesses to spend up to £150 per employee (including VAT) each year on annual staff events — such as Christmas parties — tax-free. This means that if you stay within the rules, your event can be fully deductible for corporation tax purposes, and your employees won’t face any personal tax charges.

 

Tax efficient staff Christmas party, what are the conditions?

To qualify for the tax exemption, your event must meet all of the following criteria:

• Open to all employees: You can’t restrict the event to directors or specific teams. It must be inclusive.
• Annual in nature: The event must be part of a regular tradition (e.g., Christmas party, summer BBQ). One-off events like a company anniversary don’t count.
• Cost must not exceed £150 per head: This includes VAT and covers all associated costs — food, drink, entertainment, travel, and accommodation.
• Applies across the year: The £150 is an annual limit. If you’ve already used part of it on another event earlier in the year, only the remaining balance applies.

Tax efficient staff Christmas party – what happens if you go over the limit?

This is where many businesses get caught out. If the total cost per head exceeds £150, even by a small amount, the entire amount becomes taxable — not just the excess.

Example:

• If your party costs £145 per head, it’s tax-free.
• If it costs £160 per head, the full £160 becomes a taxable benefit for employees.

In this case, your business must either:

• Report the benefit on a P11D form, or
• Enter into a PAYE Settlement Agreement (PSA) to cover the tax and National Insurance on behalf of your employees.

 

Tax efficient staff Christmas party – Can you reclaim VAT on the staff Christmas Party?

Yes — if the event is exclusively for employees, you can reclaim the VAT on related expenses. However, if you invite clients, suppliers, or employees’ partners, VAT recovery will be restricted. You’ll only be able to reclaim the portion attributable to staff.

 

Tax efficient staff Christmas party, why planning matters!

The £150 allowance hasn’t changed in over 20 years, despite rising costs for venues, catering, and travel. That means more businesses are at risk of tipping over the threshold — especially if they don’t factor in hidden costs like transport or overnight stays.

To avoid surprises:

• Budget carefully and keep track of all costs.
• Confirm headcount early to calculate per-person spend.
• Consider a PSA if you expect to exceed the limit.

 

Staff Christmas party, are you ready celebrate?

The last thing you want is for festive cheer to be dampened by an unexpected tax bill. With a little planning, your Christmas party can be a fantastic way to thank your team — without triggering tax complications.

At RPGCC, we help businesses navigate the rules around staff entertainment and ensure compliance with HMRC guidelines. Whether you’re planning a party, a team retreat, or another annual event, we’re here to help you make it tax-efficient and stress-free.

Need help or advice? Contact us or call us on 020 7870 9050 — the RPGCC team are here to help you celebrate this year in a tax efficient way!