Staff Christmas Party Tax Exemption 2026/27: The £150 Per-Head Cliff Edge
How the £150 per-head annual function exemption works, why going even £1 over makes the whole amount taxable, and how to structure multiple staff events correctly.
The cliff-edge trap
Unlike most tax allowances, which simply tax the amount above a threshold, the £150 per-head exemption is all-or-nothing: spend £150.01 per head and the whole £150.01 becomes a taxable benefit-in-kind for every attendee, not just the one penny over the limit. This makes careful budgeting — and checking the final headcount against the final invoice — genuinely important.
Income Tax Calculator
Work out how much income tax you owe using the latest 2025/26 UK tax bands.
Open Income Tax calculatorWorked example: the cost of going over
| Scenario | Cost per head | Tax outcome |
|---|---|---|
| Careful budgeting | £145 | Fully exempt — no tax |
| Slightly over budget | £152 | Full £152 becomes taxable, not just £2 |
If 40 employees attend an event costing £152 per head (£6,080 total), and the exemption is lost, HMRC treats each employee as having received a £152 taxable benefit — Income Tax and Class 1A employer National Insurance then apply to that full amount for each attendee, unless the employer settles it via a PSA instead.
National Insurance Calculator
Calculate your National Insurance contributions for 2025/26.
Open National Insurance calculatorMultiple events: an annual total, not per event
A common misunderstanding is treating £150 as available separately for each event held during the year. In fact, it's a single annual allowance across all qualifying functions — a summer party and a Christmas party in the same tax year need their combined cost per head to stay within £150, with the employer able to choose which single event (or combination) to apply the exemption to if there's more than one qualifying event, but not to exempt the full cost of both if their combined total exceeds the limit.
Practical tips for staying within the exemption
- Budget with a buffer below £150 per head, not right up to the limit.
- Base the cost-per-head calculation on actual final attendance, including any plus-ones, not the number originally invited.
- Include VAT in the cost-per-head figure from the outset.
- If holding more than one annual event, track the combined cost per head across all of them.
Sources
Frequently asked questions
What is the staff Christmas party tax exemption?
Employers can spend up to £150 per head (including VAT) on annual staff social functions — most commonly a Christmas party, but it can apply to other annual events too — without it being treated as a taxable benefit-in-kind for employees, provided specific conditions are met.
What happens if the cost per head exceeds £150?
This is the key trap: if the cost per head exceeds £150, even by a small amount, the exemption is lost entirely for that event — not just the amount over £150. The whole cost per head becomes a taxable benefit, not merely the excess above £150.
Does the £150 limit include VAT?
Yes — the £150 figure is VAT-inclusive. Employers calculating cost per head need to use the full cost including VAT, not the net (pre-VAT) figure, when checking whether they're within the exemption.
Is £150 per head a per-event limit or an annual total across all events?
It's an annual total across all qualifying annual functions, not a per-event allowance. If an employer holds a summer party costing £90 per head and a Christmas party costing £80 per head, the combined £170 per head exceeds the £150 annual limit, and at least one of the events becomes fully taxable — the employer can choose which event to apply the exemption to, to minimise the taxable amount, but can't exempt both in full.
Does the event have to be open to all employees?
Yes — to qualify, the event must be open to employees generally (or all employees at a particular location, for employers with multiple sites), not restricted to certain individuals such as senior management only. An event open only to a select group doesn't qualify for the exemption.
How is 'cost per head' calculated?
Cost per head is the total cost of the event divided by the total number of people who attend, including any non-employee guests (such as partners) brought along — so bringing plus-ones increases the headcount used in the calculation, which can help keep the per-head figure under £150, or push it over, depending on total spend and attendance.
Can a business claim the exemption for a virtual or online Christmas party?
Yes, provided the event otherwise meets the qualifying conditions — HMRC guidance has confirmed that a virtual event (for example, a paid-for online event with food/drink hampers sent to attendees) can qualify for the exemption in the same way as an in-person event, as long as it's open to employees generally and the cost per head is within the £150 limit.
What happens if the exemption is lost — who pays the tax?
If the exemption is lost (cost per head exceeds £150, or another condition isn't met), the value becomes a taxable benefit-in-kind for each attending employee, reportable on a P11D (or payrolled), with the employee liable for Income Tax on it and the employer liable for Class 1A National Insurance — though many employers instead choose to settle this liability themselves via a PAYE Settlement Agreement, so employees aren't personally taxed on it.
Is a PAYE Settlement Agreement a good way to handle a Christmas party that exceeds £150 per head?
Yes, commonly — a PAYE Settlement Agreement (PSA) lets an employer pay the Income Tax and National Insurance due on certain benefits directly, on a grossed-up basis, rather than the cost falling on individual employees' P11Ds and tax codes, which many employers prefer for staff goodwill reasons when a Christmas party has genuinely (even if narrowly) exceeded the exemption limit.
How can an employer make sure they stay within the £150 limit?
Careful budgeting based on a realistic expected headcount (including plus-ones), checking the final invoice against the actual attendance figure (not just the number invited), and building in a small buffer below £150 per head — rather than budgeting to exactly £150 — helps avoid an unexpectedly higher per-head cost if fewer people attend than planned, which increases the cost per head for the same total spend.
Try the calculators
Related reading
Company Van Benefit in Kind Tax 2026/27: Rates, Rules and Electric Vans
Everything employees and employers need to know about company van benefit in kind tax in 2026/27: the flat-rate BIK charge, fuel benefit, private use rules, electric vans at zero BIK, and how vans compare to cars.
Van Fuel Benefit Charge 2026/27: How to Avoid the Tax Hit
Van fuel benefit charge is a fixed flat rate in 2026/27. How it's calculated, what you pay, and how to avoid it with mileage logs and advisory fuel rate reimbursement.
Company Van Benefit in Kind 2026/27: Charges, Electric Vans and How to Avoid Them
Company van BIK is £3,960 in 2026/27 with a £757 fuel benefit. Electric vans are £0. Learn how private use rules work and calculate the PAYE and Class 1A NI impact.