A staff Christmas party is free of tax and National Insurance for your employees if it meets three conditions set by HMRC. It has to be an annual event, it has to be open to all your employees (or to all of them at one location), and it has to cost £150 or less per head. That £150 includes VAT and any transport or overnight stays you provide so people can get there, and it is worked out across everyone who attends, guests included.
Go over it by any amount and the whole cost per head becomes a taxable benefit, not just the part above £150. So the way to plan a party that stays tax-free is to add up every cost before you book, divide it by the number of people you expect, and leave some room. This guide sets out how the rule works from HMRC's own guidance, and where Christmas styling such as a photo booth or a prosecco wall fits in the budget.
What HMRC's £150 per head exemption covers
HMRC's guidance for employers on social functions and parties says an annual party or similar function is exempt if it is open to all your employees, happens every year, and costs £150 or less per person. A Christmas party is the obvious example, and a summer barbecue counts too.
A few details in HMRC's Employment Income Manual are easy to miss.
- VAT counts. The cost of the function includes VAT.
- Getting there counts. Coaches, taxis or hotel rooms you provide so staff can attend are part of the cost.
- Everyone who attends is counted. You divide the total cost by the total number of people at the event, including partners and other guests who are not employees.
- It has to be annual. A one-off celebration, such as a company anniversary party, does not qualify, however many staff are invited.
- Online parties count. HMRC accepts a virtual party, as long as the other conditions are met.
If your business has more than one site, a party open to everyone at one location still qualifies. Separate parties for different departments can be exempt too, as long as every employee can go to one of them.
What happens if the party goes over £150 a head
HMRC is clear that the £150 is not an allowance. If the cost per head comes to £151, the exemption is lost and the full £151 a head is a taxable benefit for every employee who went. Your business then has to report it on each employee's P11D and pay Class 1A National Insurance on the full cost of the event.
The same applies to a party that is not open to everyone. In one of HMRC's worked examples, a company's Christmas party for all staff at £50 a head is exempt, while a separate party for directors only at £75 a head is not, so each director who attends is taxed on it.
A summer party and a Christmas party share the same £150
The £150 covers all your annual functions together, not each one separately. HMRC's example is a company holding two dinner dances open to all staff, one at £100 a head and one at £80. Together they come to £180, so both cannot be exempt. The better choice is to exempt the £100 event and treat the £80 one as taxable, so staff who went to both are taxed on £80 rather than £100.
If you also hold a summer event, the two have to fit inside £150 a head between them for both to be exempt. It is worth budgeting the two together before either is booked.
Working out your cost per head before you book
The simplest way to stay inside the limit is to list every cost, add VAT where it applies, and divide by the number of people you expect. A typical list looks like this.
- Venue hire, and any room or corkage charges
- Food, from a sit-down meal to a buffet or late evening snacks
- Drinks, including anything you put behind the bar
- Entertainment, such as a DJ, a band or a photo booth
- Styling and props, such as a backdrop, a prosecco wall or a dessert cart
- Transport, such as coaches or taxis home that you pay for
- Hotel rooms, if you are putting people up overnight
Then divide by the total headcount. For a party of 100 people, the whole event can cost up to £15,000 including VAT before it reaches £150 a head. To put styling in proportion, our Gold corporate package at £850 comes to £8.50 a head across 100 guests.
Two habits make it much harder to go over by accident.
- Leave a margin. HMRC divides the total cost by the people who attend. If a few drop out on the night, or the bar bill runs higher than planned, the cost per head goes up.
- Ask for VAT to be shown. Check that every quote states whether VAT is included, because HMRC counts it.
HMRC's guidance is the authority here, and your accountant can confirm how it applies to your own figures.
Where Christmas styling fits in the budget
Our Christmas party package starts from £850, with setup, styling and collection included. It is built around four things.
- A magic mirror photo booth, with props and an attendant
- A prosecco wall, with glass hire included
- A luxury festive backdrop
- A candy cart, which can become a hot chocolate station, a pancake bar, a hot toddy bar, a mulled wine station, a sweet treat cart or a festive dessert display
Alcohol isn't included unless it is arranged separately, so talk to us or your venue about what will go in the glasses on the prosecco wall or into the mulled wine.
The magic mirror is a full-length mirror with a screen. Guests strike a pose for full-length photos and can leave personal messages on the mirror screen. Hired on its own, it runs for four hours with full setup and breakdown, unlimited online photos through an instant QR code, and a choice of a 200 or 400 print package.
For a smaller budget, or a party that is not Christmas themed, the corporate event packages come at three fixed prices.
- Bronze, £300. A welcome sign, a seating chart display and a picture backdrop.
- Silver, £500. Everything in Bronze, plus a doughnut wall that holds up to 48 doughnuts and a prosecco wall with flutes and signage. Doughnuts are not supplied as standard but can be arranged on request.
- Gold, £850. Everything in Bronze and Silver, plus the magic mirror photo booth with props and digital prints, and the candy cart decorated and stocked with sweets for up to 100 guests.
Every element of the Christmas package can be changed to suit your venue, guest numbers, theme and budget.
Planning a party all your staff will enjoy
Not everyone looks forward to the work Christmas party. In a YouGov survey of 1,052 employees for Acas, 12% picked one-off celebrations such as birthdays, Christmas or leaving parties among their least favourite work social activities, and 19% said they did not like any social activities with colleagues. Acas advises employers to ask staff what they would enjoy rather than assume, and to keep team activities within working hours so that people with caring responsibilities are not left out.
A few choices make a Christmas party easier for more of your team to enjoy.
- Offer good drinks without alcohol. A prosecco wall works just as well filled with alcohol-free fizz or fruit juice, and a hot chocolate station gives non-drinkers something better than a soft drink. After a baby shower we styled, our client wrote that "our non-alcoholic guests loved the inclusion of alcohol free mimosa’s".
- Give people something to do besides drink. A photo booth gives colleagues something to do together, and everyone can collect their photos from the QR code afterwards.
- Think about the time. A lunchtime or early evening party is easier for staff with children or other commitments, which is the same thinking behind Acas's advice on working hours.
- Check the venue's licence. If the party is somewhere without an alcohol licence and drinks will be sold, the organiser needs a Temporary Event Notice from the council, given at least 10 clear working days before the event.
Booking Christmas party styling in Kent and Sussex
We are Mark and Claire, and we run Flash of Elegance from Crowborough, styling events across Kent, Sussex and the surrounding areas. Claire brings the styling and the eye for detail. Mark brings a background in construction and an electrician's expertise to the props we have hand-crafted together.
The Christmas package includes setup, styling and collection, so nobody on your team has to build anything on the day. You can see more of our work in the gallery and read more about us.
When you get in touch, it helps to have three things ready. Your date and venue, your expected headcount, and roughly what you plan to spend per head once food, drink and travel are covered. With those, we can suggest a setup that keeps your party inside the £150 limit.
To check your date with Flash of Elegance, contact us with your venue and headcount, and we will put together a Christmas package for your team.