Can I claim a Christmas party?

A staff Christmas party is tax-free for your employees if it is annual, open to all employees and costs £150 or less per head. It does not have to be a Christmas party: any annual function such as a summer barbecue counts, and it also applies to online or virtual events.

• Cost per head: work out the total cost of the event, including VAT and any guests, and divide it by the number of people attending.
• More than one event: the £150 limit applies across all annual events in the tax year. If the total goes over, HMRC treats the events that best use up the £150 as exempt and the others as taxable.
• Separate parties: you can hold separate parties for different teams or locations as long as every employee can attend one of them.

Go over £150 and the whole cost becomes taxable, not just the excess. You then report it to HMRC and pay National Insurance on it.

The exemption is for staff. Entertaining clients is generally not tax deductible, so keep the two separate in your bookkeeping. If you have no employees, there is no staff party exemption to use.

Legislation and guidance: Income Tax (Earnings and Pensions) Act 2003, section 264 (annual parties and functions); HMRC Employment Income Manual EIM21690 and EIM21691 (worked examples).