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YOUR 2025 GUIDE TO CHRISTMAS PARTIES AND EXPENSES

It’s that time of year again! The Christmas party’s about to kick off and everyone’s ready to let their hair down.


It’s also around this time we get a lot of common year end questions from our clients at Sadler Advisory about office part and annual event expenses. 


What can you claim? What is tax free? What risks creating a benefit in kind? And do you think I can get away with serving Cava instead of Champagne?


Whilst you’ll have to figure the last one out for yourself, we can explain the tax rules about Christmas parties and what you need to do to avoid unwanted presents from HMRC.


Check out our guide below to learn how to throw a tax free annual knees up.


  1. WHAT QUALIFIES AS A STAFF CHRISTMAS PARTY IN THE EYES OF HMRC?


If you want your event to stay tax free, it needs to meet all three of HMRC’s annual party conditions.

1. It must be an annual event

Christmas parties, summer events and end of year celebrations all qualify.

2. It must be open to all employees

Everyone should be able to attend. You can run different events for separate locations or departments as long as each is open to all staff in that group.

3. It must cost £150 per person or less including VAT

This is a total per head cost, not a spending allowance. Go over £150 and the whole thing becomes taxable.


  1. WHAT IS INCLUDED IN THE £150 PER HEAD CALCULATION?


Everything you spend must be included in the calculation such as:

  • Food and drink

  • Venue hire

  • Entertainment

  • Transport

  • Overnight stays

  • VAT

To calculate this correctly, take the total cost of the event and divide it by the number of attendees. If the result is £150 or under, it qualifies.


  1. WHAT HAPPENS IF THE PER HEAD COST EXCEEDS £150?


If the per head cost exceeds £150, even by £1, the entire cost becomes a taxable benefit for employees. This cannot be partially exempt. If the company wants to cover the tax, you will need a PAYE Settlement Agreement. See HMRC's guidance on PSA.

If you have more than one annual event in the tax year, you can choose which events to treat as exempt. Most businesses select the most expensive event to use the exemption.



What if you run more than one annual event?


If you host multiple events in the same tax year, you can decide which events to treat as exempt, provided the combined exempted cost doesn’t exceed £150 per head. 

Most businesses choose to exempt their most expensive qualifying event and treat any additional events as taxable.


  1. CAN DIRECTORS ATTEND?


Yes. Directors are classed as employees for this purpose and can attend tax free as long as the party itself qualifies.


If you are a sole director with no staff, you can still claim one annual event each year within the £150 limit.



  1. WHAT ABOUT EMPLOYEES BRINGING GUESTS?


If employees can bring a plus one, their guest must be included in the cost per head calculation. The allowance still applies per attendee.  Example: A party for 40 employees and 10 guests counts as 50 attendees.


  1. CHRISTMAS GIFTS, TRIVIAL BENEFITS AND WHAT YOU CAN CLAIM


Christmas gifts for employees can be tax free if they qualify as trivial benefits. The rules are:

  • Cost of £50 or less

  • Not cash or a cash convertible voucher

  • Not a reward for work done

  • Not contractually required

Directors of close companies have an annual trivial benefit cap of £300.

Client gifts

These are allowable if they:

  • Cost £50 or less

  • Carry clear business branding

  • Are not food, alcohol or tobacco unless branded

Reasonable costs for Christmas decorations in the workplace are allowable business expenses.


  1. VIRTUAL CHRISTMAS PARTIES


Virtual team events remain eligible for the annual event exemption, provided:

  • They are open to all employees

  • The cost per head stays within £150

  • The business pays for items like food, drink, entertainment or hampers sent to staff

This was confirmed during HMRC’s coronavirus updates and remains acceptable under the annual function rules.


  1. RECORD KEEPING CHECKLIST


To keep things simple at year end, keep these records:

  • Total event costs

  • Number of attendees

  • Clear cost per head calculation

  • Invoices for all elements

  • Proof that the event was open to all employees

  • Receipts for employee gifts

  • Notes for trivial benefits

Decision on which events you have treated as exempt

  1. COMMON CLIENT SCENARIOS


To make it crystal clear, take a look at this table that explains how the rules apply for different annual event scenarios.

Scenario

Event details

Result

1

Party cost per employee is £120

Fully exempt — nothing to report, nothing to pay

2

Party cost per employee is £155

Entire amount becomes taxable — exemption is all-or-nothing

3

Two events: Summer Party £40 per head + Christmas party £145 per head

You can only exempt one event because total exceeds £150 pp. Most businesses exempt the £145 event to reduce tax exposure

4

Sole director company

One annual event is still allowed, as long as the total cost does not exceed £150 per head

  1. FINAL PRACTICAL TIPS FROM SADLER ADVISORY


  • Plan early and keep the £150 limit in mind

  • Track guest numbers before confirming venue costs

  • Use trivial benefits for small gifts

  • Keep receipts and calculations together

  • Ask us if something is borderline

A well-planned Christmas event is great for morale and can be completely tax free with the right approach.

If you would like help reviewing your Christmas expenses or want us to double check the calculations, we are here to support you.

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