Staff are normally taxed on benefits provided by their employer, but there are rules to allow employers to provide some benefits free of tax. Staff parties to the value of £150 including VAT per head can be provided over the course of the tax year without there being a taxable benefit for the employee providing that certain criteria are satisfied.
Firstly the party must be open to all staff, even if they choose not to attend. Secondly the £150 per head covers the costs of the venue, food, entertainment, transport and VAT.
An additional £150 can be spent on each guest, providing that all staff are allowed to bring a guest. Care should be taken not to exceed the £150 limit on one single event, as this will trigger the whole of the amount spent being taxed not just the excess.
On top of this tax deduction, the input VAT you incur on the on providing the Christmas party can be recovered, a saving of almost 15%.