As we are now in October, it’s likely that many businesses are starting to think about throwing a staff Christmas party. So, it seems like a good time to remind you about HMRC’s £150 Annual Event Exemption.
If you are looking to throw a Christmas party then thanks to the exemption, you can reward staff in a tax-efficient way — but only if you follow the rules carefully.
It’s essential to remember that the £150 is not an allowance — it’s an exemption, and if you go even £1 over the limit, the whole amount becomes taxable.
Here we take a look at how the Annual Event Exemption works, what costs count, and how to make sure your celebrations stay tax-free.
What is the £150 Annual Event Exemption?
This HMRC exemption allows you to host annual events for employees without triggering Income Tax or National Insurance — as long as the cost doesn’t exceed £150 per person.
To qualify, your event must:
- Be annual (e.g., Christmas party, summer BBQ)
- Be open to all staff, or all staff at a specific location
- Cost £150 or less per head, including VAT
- Be for employees, even if guests (like partners) are invited
Virtual events like Zoom wine tastings or online quiz nights also count, provided they meet the same criteria.
The exemption can apply to multiple annual events – as long as the combined cost of the events is no more than £150 per head, they’re still exempt.
What does “£150 per head” include?
HMRC expects you to include everything connected to the event including:
- Food & drinks
- Venue hire and entertainment
- Transport (taxis, coaches, etc.)
- Accommodation (if needed)
- VAT (even if reclaimable)
- Guest costs (e.g., partner or guests)
How to calculate the cost per head
Simply follow these steps:
- Add up all costs for the event
- Divide by the total number of attendees (including guests)
- If the result is £150 or less, the exemption applies
Can you host more than one event?
Yes — but with a catch. The £150 is the total combined amount per person per tax year for all qualifying events.
For example – your staff enjoy the following during the year:
- Summer BBQ: £75/head
- Christmas party: £70/head
Total: £145 → all tax-free
But if the costs were
- Summer BBQ: £75/head
- Christmas party: £80/head
The total cost per head for both functions would be £155 so they cannot both qualify for exemption.
Since the cost per head of each event on its own was not more than £150, either event can qualify for exemption on its own but it is more beneficial overall for the Christmas party to be exempted (as it is higher value).
So the benefits arising from that function will not be charged and those arising from the Summer BBQ will be charged.
For employees who attended:
- both events – they will be chargeable only on the benefit of £75 for the Summer BBQ
- only the Summer BBQ – they will be chargeable on the benefit of £75
- only the Christmas Party – there will be no chargeable benefit because that event is exempt
What are the consequences if you go over the £150 Annual Event Exemption limit for one event?
If you exceed the £150 for one event per head limit by even £1:
- The full amount becomes taxable
- You must report it via a P11D form or arrange a PAYE Settlement Agreement
- Employees may owe Income Tax
- Employers must pay Class 1A NICs
To help avoid exceeding the £150 limit you should:
- Keeping a running total of event costs
- Save receipts and attendance lists
- Getting advice before finalising plans
Common mistakes to avoid when considering the £150 Annual Event Exemption are:
- Forgetting that guests count in the per-head cost
- Leaving VAT out of your calculation
- Assuming £150 is per event (it’s per year)
- Going £1 over, thinking only the excess is taxable (it’s not)
Our thoughts
The £150 Annual Event Exemption is a powerful (and often overlooked) way to treat your team — or even yourself if you’re a company director — without triggering a tax headache. Done right, it boosts morale, supports team culture, and is tax efficient. Done wrong it can result in Income Tax and National Insurance charges.
Just make sure you follow the rules, keep costs under control, and track everything properly.
If you’re unsure and need our help, get in touch at enquiries@cowgills.co.uk
