HMRC Christmas Party Allowance – How Much Can Employers Spend?
• December 18, 2025
Planning a staff Christmas party isn’t just a way to thank your employees,it can also offer a valuable tax-saving opportunity for businesses. However, many employers misunderstand or misapply the HMRC rules related to staff entertainment, resulting in unexpected tax liabilities.
The so-called HMRC Christmas party allowance, while widely referenced, is technically a tax exemption, and it comes with strict conditions.
This guide explains what UK employers need to know about how much they can spend on festive celebrations without triggering tax or National Insurance consequences.
From eligibility and cost breakdowns to virtual party guidance and VAT considerations, we’ll walk you through it all.
What is the HMRC Christmas Party Allowance and How Does It Work?
The HMRC Christmas party allowance isn’t a literal allowance. Instead, it’s a tax exemption that allows employers to host annual events, such as a Christmas party or summer gathering, for their staff, free from Income Tax and National Insurance, provided certain criteria are met.
The most important of these is the £150 per person threshold. This figure is inclusive of VAT and must cover all associated costs such as:
- Venue hire
- Food and drinks
- Entertainment
- Transport
- Accommodation
If the total cost per attendee exceeds £150, even by a penny, the entire amount becomes a taxable benefit for employees. This amount is then subject to tax and Class 1A National Insurance, which must be reported via form P11D or processed through a PAYE Settlement Agreement (PSA).
Thus, the term “allowance” can be misleading. It’s better understood as an exemption limit, go over it, and the exemption is completely lost.
Who is Eligible to Claim the HMRC Christmas Party Exemption?
This exemption primarily applies to employers who operate as limited companies and have employees on payroll. The key requirement is that the event must be open to all employees, not just a select group, such as directors or one department.
Eligibility overview:
| Entity Type | Eligible for Party Exemption? | Notes |
|---|---|---|
| Limited companies with employees | Yes | Must be open to all employees |
| Sole directors with no employees | Sometimes | Allowed if director is the only employee and follows all rules |
| Self-employed individuals | No | Not eligible unless employing staff |
| Contractors with limited company | Yes, if they’re employees | Can include themselves and a guest |
A plus-one (such as a partner or spouse) can be included under the exemption, provided they attend as a guest of an employee and the combined cost per head remains within £150.
What Are the Conditions to Qualify for the £150 Tax-free Benefit?
To qualify for HMRC’s tax exemption for staff entertainment, an event must meet three core conditions:
1. The Event Must Be Annual
It should be something that occurs regularly each year, such as a Christmas party or summer BBQ. One-off celebrations, like a milestone or farewell party, don’t qualify.
2. The Event Must Be Open to All Employees
If the event is only for directors or for one department, it won’t qualify, unless those individuals are the only employees in the company.
If your company has multiple locations, hosting a party per location is allowed, provided all staff at each site can attend one of the events.
3. The Total Cost Must Not Exceed £150 Per Head
The limit includes everything, VAT, food, entertainment, transport, venue hire, and any gifts given out during the party. Crucially, this figure applies per attendee, which includes both employees and their invited guests.
If these three conditions are not fully met, the entire cost of the party becomes a taxable benefit for each employee who attended.
“Exceed the £150 by even 1p, and you lose the exemption completely. Planning carefully is not optional—it’s essential.”
How is the Cost Per Head Calculated for HMRC Party Exemption?
Calculating the cost per person accurately is fundamental to ensuring you don’t accidentally breach the £150 threshold.
Calculation Method
The total cost of the event, including all expenses, is divided by the total number of attendees. This includes both employees and their invited guests.
Let’s take a practical example.
| Example Scenario | Details |
|---|---|
| Total Event Cost | £3,000 (inc. VAT) |
| Number of Attendees | 10 employees + 10 guests = 20 |
| Cost Per Head | £3,000 ÷ 20 = £150 |
| Result | Within exemption |
In this case, the cost per head is exactly £150. If, however, the total spend increased by just £20, the cost per head would rise to £151, and the entire £3,020 would become a taxable benefit.
It’s not possible to simply tax the excess; the whole exemption is void if the cap is breached.
Can Employers Host Multiple Events and Still Stay Within the Exemption?
Yes. HMRC permits employers to host more than one annual event, provided the combined cost per head across all events within a single tax year does not exceed £150.
Allocating the Exemption
If your business hosts multiple events, say a summer BBQ and a Christmas party, you may allocate the exemption to one or more of these as long as the total remains within the annual threshold.
Example:
| Event | Cost Per Head |
|---|---|
| Summer BBQ | £75 |
| Christmas Party | £70 |
| Total | £145 |
Since the combined amount is under £150, both events qualify for exemption. However, if the total cost of both events is, say, £160 per head, you must choose which one to apply the exemption to, usually the more expensive one.
Are virtual Christmas parties and hampers covered by HMRC rules?
In today’s hybrid and remote working environment, virtual Christmas parties have become increasingly common, and HMRC does recognise them as valid annual events if certain conditions are met.
To qualify for the tax exemption, the virtual party must be formally organised, involve real-time participation, and require employees to actively attend and engage. Importantly, the total cost per employee must stay within the £150 annual limit.
Sending hampers or gifts on their own does not qualify as a Christmas party under HMRC rules. However, hampers can be included as part of a virtual event if employees participate live.
Gifts given without an event may still qualify as a trivial benefit, provided they are worth £50 or less and meet all other HMRC conditions.
What Other Christmas Expenses Can Be Claimed by Employers?
While the Christmas party itself is the main focus, there are several other festive-related expenses that employers may wish to provide. These each have their own tax treatment.
Here’s a breakdown:
| Expense Type | Tax Treatment | Key Rules |
|---|---|---|
| Cash Bonuses | Taxable as earnings | Subject to PAYE and NI |
| Non-cash Gifts | Possibly tax-free (trivial benefit) | Must be under £50, not a reward, not contractual |
| Client Gifts | Generally not tax-deductible | Must be under £50, branded, and not food, drink, or vouchers |
| Decorations | Allowable for office premises | Not claimable if working from home |
What Qualifies as a Trivial Benefit?
- Cost is £50 or less (including VAT)
- Not cash or a cash voucher
- Not a reward for performance or part of a contract
- For directors of close companies, annual cap is £300
These benefits can be a useful alternative for companies that are not eligible to claim the party exemption or want to do something extra.
What Happens If the £150 Limit is Exceeded?
Exceeding the HMRC £150 annual event allowance can have important tax implications for employers, making it essential to understand how even a small overspend can affect reporting and National Insurance obligations.
- The entire cost becomes a taxable benefit, not just the amount above the threshold.
- The employer must report the full cost on each employee’s P11D form.
- Class 1A National Insurance Contributions must be paid on the full value.
- Alternatively, the company may include the amount in a PAYE Settlement Agreement (PSA) and settle the tax liability on behalf of the employees.
This rule applies regardless of how close the cost is to the limit. Spending £150.01 triggers the same reporting requirements as spending £300 per head.
Therefore, employers must plan budgets meticulously, factoring in all costs including last-minute additions like transport or drinks.
Conclusion
The HMRC Christmas party exemption offers a fantastic way to reward your team without incurring tax liabilities, if handled correctly.
By staying within the £150 per head limit, making the event open to all employees, and ensuring it qualifies as an annual celebration, employers can benefit from a generous and legitimate tax relief.
Virtual events are equally eligible, provided participation is clear and costs remain controlled. For those unable to claim the exemption, such as sole traders or those without employees—trivial benefits may offer an alternative festive gesture.
Ultimately, accurate planning, record-keeping, and an understanding of the rules will help ensure your Christmas celebrations are not only joyful but also financially compliant.
FAQs About HMRC Christmas Party Allowance
Can HMRC Christmas party exemption be claimed for online-only businesses?
Yes, online-only or remote businesses can claim the exemption as long as the virtual party meets all standard criteria, namely being an annual event, open to all staff, and within the £150 per head limit.
Do business owners need to report exempt events to HMRC?
No reporting is necessary for fully exempt events. However, if the exemption conditions are breached, the full cost must be reported and taxed accordingly.
Is alcohol included in the £150 per person limit?
Yes, alcohol, along with all other expenses such as food, entertainment, and transport, must be included in the cost per head calculation.
What are the HMRC rules for department-only parties?
Parties held for individual departments are acceptable if each employee has the opportunity to attend at least one annual event, ensuring fairness across the organisation.
Can directors reclaim VAT on Christmas party expenses?
Yes, but only if employees also attend. VAT is not reclaimable on director-only events, unless they are the only employees in the business.
Are plus-ones or guests included in the exemption?
Yes, guests can be included, but they must be factored into the cost-per-head calculation. This allows for effectively doubling the budget per employee when bringing a guest.
What is the difference between trivial benefits and the party exemption?
Trivial benefits apply to small, non-cash gifts worth £50 or less. The party exemption covers the cost of annual events up to £150 per head and must meet specific criteria regarding attendance and frequency.
