How to save money on your Christmas party

Like the owners of many other small businesses, you may have already planned a Christmas party for your staff, but did you know that it could cost you less than you think.

Although there is no specific allowance for a Christmas party or other morale boosting events, HMRC does offer a company limited tax relief for the cost of hosting an ‘annual event’ when qualifying criteria are met.

A business can provide an annual event for its directors and staff and treat the costs and the VAT as tax deductible. However, if other people attend such as customers or suppliers, the treatment is not as straight forward.

Provided the cost per head is not more than £150 (including VAT), the employees will not suffer any income tax on the 'benefit' of attending the party. The event must be open to all staff. It can be restricted to staff working at just one location, but it cannot be restricted to certain staff, such as directors or management only.

Should you wish, you can also hold several events throughout the year but bear in mind that the total claim for all events must not exceed the £150 (including VAT) threshold. The cost per head can include food and drink, transport and even accommodation, but must not go over the threshold. A simple way to work out the cost per head is to divide the total cost of the event by the total number of people who attend.

Outside of this specific annual event exception, staff entertainment is regarded as a benefit in kind (BIK), and directors and employees would need to pay tax on the value of the benefit. This means you may want to think again before taking your staff out for an impromptu celebration and then trying to reclaim the cost. It is also worth noting that if the cost for an event exceeds £150 per head, the whole amount is considered to be a BIK and not just the excess. 

Employee gifts

It is important to note there are also rules to consider when buying your employees gifts. If you treat them to some chocolates or a bottle of wine, this type of gift would be deemed ‘trivial’ and would not be subject to any reporting requirements or tax and no national insurance contributions (NICs) would be triggered.

HMRC will accept a benefit as ‘trivial’ if it meets the following conditions:

• It does not cost more than £50 (including VAT).
• It is not cash or a cash voucher
• The employee is not entitled to the benefit under their employment contract
• It is not a reward for any of their employment duties
• It isn’t provided under salary sacrifice

Directors of close companies cannot receive more than £300 of trivial benefits per tax year i.e. up to 6 x £50 gifts in total. There is no maximum value or number of trivial benefits you can provide for other employees or directors.

If you want to make more generous gifts, the value of the gift should be taxed via:

• PAYE through the company payroll
•  form P11D, or
• a PAYE Settlement Agreement (PSA).

‘Payrolling’ a gift to an employee means income tax and employee’s and employer’s NICs will be triggered and paid through payroll. Reporting a gift on P11D means income tax will be triggered and paid either through HMRC adjusting the employee’s tax code or the employee filing a self-assessment tax return and the employer will pay Class 1A NICs via form P11d(b), with no NICs for the employee to pay.  However, with a PSA the employer agrees to settle the liability themselves.

Need some help with Christmas parties and gifts?

Treating your staff can be a very complex area, so call 01535 601199 or enquire online here to arrange an appointment with your local TaxAssist Accountant and give yourselves peace of mind this Christmas.

 

Last updated 20 Nov 2025 | First published 1 Dec 2017

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This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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