How much can you spend on a Christmas party?

Christmas is fast approaching, which means one question starts popping up in conversations with clients every year:

"How much can we spend on our Christmas party without creating a tax problem?"

The good news is that HMRC allows businesses to provide annual staff events tax-free, provided a few simple conditions are met.

If you're planning a Christmas party, here's what you need to know.

The £150 Rule

To qualify for the tax exemption, your annual staff event must:

• Cost no more than £150 per person, per year

• Be an annual event, such as a Christmas party or summer BBQ

• Be open to all employees

• Include employees' spouses or partners if you wish. They also qualify for the exemption, effectively giving a couple a combined allowance of £300

• Include all costs paid by the business, such as food, drinks, entertainment, taxis and hotel accommodation

Be Careful of Going Over the Limit

One of the most common misunderstandings is that the £150 limit is not an allowance.

If your event costs £151 per head, the entire £151 becomes taxable as a benefit. It is not just the £1 excess that causes a tax charge.

It's also important to remember that the £150 limit includes VAT, as well as any additional costs the company pays for, such as transport or overnight accommodation.

What If You Hold More Than One Event?

The £150 exemption applies across all annual staff events during the tax year.

For example:

✅ Summer BBQ: £70 per person
✅ Christmas Party: £70 per person

Total annual cost: £140 per person

In this case, both events can qualify for the exemption.

However:

✅ Summer BBQ: £70 per person
✅ Christmas Party: £95 per person

Total annual cost: £165 per person

As this exceeds the £150 limit, you can usually choose which event benefits from the exemption. In this example, it would normally make sense to exempt the Christmas party (£95) and treat the summer event (£70) as a taxable benefit.

Can the Company Claim Tax Relief?

Yes. The costs of staff entertainment are generally deductible for Corporation Tax purposes, provided they relate to employees and meet the usual business rules.

Need Some Advice?

If you're planning a Christmas party and aren't sure whether your event will qualify, we're happy to help.

Get in touch with the team at Zest and we'll help you keep the celebrations tax-efficient, leaving you free to focus on enjoying the evening.

And as for the office photocopier... it's probably best left alone after the party.