Unwrapping the £150 Christmas Party Exemption: A Tax Guide for UK Businesses
Many UK businesses know about HMRC’s £150 per person allowance for Christmas parties and other annual events. It sounds simple: spend up to £150 per head, claim a full corporation tax deduction, and employees avoid a Benefit in Kind charge.
But the details behind this rule often catch employers out. A small oversight can turn a tax-free celebration into a taxable benefit with unexpected reporting and NIC costs. Here’s what you need to know to use the exemption correctly.
What Counts as an Eligible Event?
The exemption applies only to annual events. A Christmas party qualifies, and a summer party can qualify too. The event must be something the business intends to hold every year, not a one-off.
It also must be open to all employees. If only directors attend, the exemption does not apply. If only one department receives an invitation, the relief is lost. HMRC expects the whole workforce to have the opportunity to attend.
Understanding the “All or Nothing” £150 Limit
The £150 limit is not a simple allowance. It’s an all or nothing rule.
Go over the £150 per-head cost by even £1, and the full amount becomes a taxable benefit.
When that happens, the employer must report the benefit on each employee’s P11D and pay Class 1A NIC on the entire cost. For the 2025/26 tax year, the Class 1A NIC rate is 15%.
This often surprises employees, who expected a free festive event - not an extra tax charge.
Multiple Events and the Combined £150 Threshold
If your company holds more than one annual event, such as a summer party and a Christmas party, the £150 applies to the total cost of all events combined.
For example, if the summer event costs £80 per head and the Christmas party costs £100 per head, the total is £180. That exceeds the limit. You may then choose which event receives the exemption. The other event becomes taxable.
What Costs Count Towards the £150?
Many employers miscalculate the per-head figure. HMRC requires you to include all costs of providing the event, including:
Venue hire
Food and drink
Entertainment
VAT
Any transport or accommodation provided
After adding everything together, divide the total cost by the number of attendees. That calculation gives you the official per-head figure.
Another key point: the exemption applies per head, not per employee. If employees can bring partners or guests, each attendee receives a £150 allowance. This can increase the total tax-free budget, as long as the costs remain under control.
What Happens If You Go Over the Limit?
If the event exceeds the £150 threshold, the benefit becomes taxable. The employer must:
Report the event on each employee’s P11D
Pay Class 1A NIC at 15% on the full event cost
The P11D deadline is 6 July following the end of the tax year. The NIC payment is due by 22 July.
Many employers prefer to avoid passing the tax charge to employees. This is where a PAYE Settlement Agreement (PSA) can help.
Using a PAYE Settlement Agreement (PSA)
A PSA allows the employer to pay the tax and Class 1B NIC on behalf of employees. This keeps the event tax-free for the staff. No P11Ds are needed, and the benefit does not appear on personal tax returns.
To use a PSA, you must agree it with HMRC by 6 July following the end of the tax year. The tax and Class 1B NIC must be paid by 22 October.
For 2025/26, Class 1B NIC is also 15%.
A PSA keeps employee goodwill intact, especially when the event was meant as a thank-you for hard work.
Final Thoughts
The £150 annual event exemption is generous, but it comes with strict rules. VAT, transport, accommodation, and guest invitations all affect the calculation. One small oversight can push your event over the limit and create a tax liability.
Understanding these rules helps you plan staff events confidently and avoid unnecessary costs. If you need help reviewing event budgets, checking the tax position, or arranging a PSA, professional advice can make the process smoother and fully compliant.
If you would like support reviewing event costs, understanding the tax implications, or arranging a PSA with HMRC, we are here to help.
Get in touch:
📧 hello@surreyhillstax.co.uk
📞 01483 970 410