Is a Work Christmas Party Tax Deductible?

Throwing a Christmas party for your team is a great way to thank them — but from a business perspective, it also raises important tax questions. Is it tax deductible? Is it classed as a benefit in kind for employees? Can staff bring a plus one? And what happens if you go over the £150 per head limit?

HMRC has clear rules about what you can and can’t claim for. Here’s what you need to know.

Is a Work Christmas Party Tax Deductible?

Yes, a staff Christmas party can be tax deductible if it qualifies as an annual staff event under HMRC’s rules. The cost is treated as a business expense for corporation tax purposes, as long as it meets specific criteria.

However, deductibility for tax doesn’t automatically mean exempt from tax for employees. That depends on whether it qualifies under the annual event exemption.

Is a Work Christmas Party a Taxable Benefit for Staff?

It depends. If your event qualifies under HMRC’s annual function exemption rules, then no — it’s not a taxable benefit for employees and doesn’t need to be reported on a P11D.

If the event doesn’t meet the exemption conditions, the cost is treated as a benefit in kind and may be subject to income tax and Class 1A National Insurance.

What Is the £150 Threshold?

The £150 per head limit is the maximum total cost that can be covered tax-free under the exemption.

This includes:                             

• The cost of the event (venue, food, drink, entertainment)

• VAT

• Transport and accommodation if provided

The £150 is not an allowance — if the total per person exceeds £150, the full amount becomes taxable, not just the excess.

This limit applies per person per tax year, and not just for the Christmas party — it applies to all annual events combined.

What Other Rules Surround the Annual Party Allowance?

To qualify for exemption:

• The event must be annual in nature — such as a Christmas party or summer social

• It must be open to all employees (or all at a particular location)

• The total cost must not exceed £150 per head, including VAT and any extras

• It must be primarily for staff, not clients or directors only

If your business runs multiple annual events (for example, a summer party and a Christmas meal), the combined cost must still be within the £150 limit for the exemption to apply to both.

Can Your Staff Bring a Guest?

Yes — employees can bring a guest, such as a partner, and the guest will also qualify for the exemption as long as they are an accompanying person.

However, the £150 limit applies per attendee, not just per employee. So if the employee and guest attend, the total for both can be up to £300 — but the per-person cost must not exceed £150, or the entire benefit becomes taxable.

What Happens If the Event Doesn’t Meet the Exemption Conditions?

If the cost per head goes over £150, or the event isn’t open to all staff, it becomes a taxable benefit in kind.

In that case:

• The benefit must be reported on a P11D for each affected employee

• The company pays Class 1A National Insurance on the full cost

• Employees may also have to pay tax on the value received

An alternative is to use a PAYE Settlement Agreement (PSA), where the employer agrees to cover the tax on behalf of the employees.

Can I Deduct the VAT?

Yes, VAT is reclaimable on the cost of the event if it’s only for employees. If guests or clients attend, you’ll need to apportion the VAT and only claim for the employee portion.

For example, if 20 people attend (10 staff and 10 guests), and the total VAT is £400, you can claim back £200 (the proportion relating to employees).

If directors are the only ones attending and there are no other employees, HMRC is likely to reject the VAT claim.

What Records Must I Keep?

To support your claim and exemption, you should keep:

• Invoices and receipts for all costs

• Guest lists showing who attended

• Any internal communications inviting all staff

• Calculations showing the cost per head

This documentation helps if HMRC ever queries the claim or asks for evidence during a compliance check.

How Many Parties Are Allowed?

There’s no limit on the number of parties you can hold — but the total cost across all events must stay within £150 per head per year to qualify for the exemption.

If you hold two events and their combined cost is £130 per head, both are exempt. If you hold three and they total £170, you must choose which one(s) to exempt — and the others may be treated as taxable.

Final Thoughts

A work Christmas party can be fully tax deductible and tax-free for employees — as long as it meets HMRC’s criteria. Keep the per-person cost within £150, open it to all staff, and document everything properly. If you go over the limit or exclude employees, you could face extra tax and National Insurance.

With the right planning, you can celebrate the festive season while keeping it tax-efficient.