Staff Party Exemption Rules 2025/26
- Annual exemption: £150 per head per tax year (inclusive of VAT).
- Per head = total event cost ÷ total attendees (employees + guests).
- Multiple events: You can combine events; total combined per-head must stay ≤ £150.
- Cliff-edge rule: If the limit is exceeded, the entire event cost becomes a taxable benefit — not just the excess.
- Open to all: Event must be open to all employees at that location or department.
- Class 1A NIC: Employer pays 13.8% on any taxable benefit (15% from April 2025 — check current rate).
Staff Party Allowance Calculator
Per-head cost is calculated using total attendees (employees + guests). The £150 limit is inclusive of VAT.
How the £150 Per Head Exemption Works
The annual function exemption (under s.264 ITEPA 2003) allows employers to hold annual staff events without the cost being treated as a taxable benefit in kind, provided the total cost per head does not exceed £150 per tax year. This is not a per-event limit — it is an annual cumulative limit across all qualifying events you choose to designate.
The £150 is inclusive of VAT and includes all costs associated with the event: venue hire, food, drink, entertainment, accommodation, and transport if provided by the employer. It does not include the cost of employees getting themselves to the event unless the employer arranges and pays for transport.
Per head is calculated by dividing the total event cost by the total number of people who attended — employees and guests alike. If an employee brings their partner, both count as attendees. This halves the per-employee budget for events where guests are common.
Multiple Events: The Optimisation Strategy
Many employers hold more than one annual event — a summer party and a Christmas dinner, for example. The exemption covers multiple events provided the combined per-head cost across designated events stays within £150.
If two events together cost £180 per head, you can designate whichever event costs the smaller amount per head as exempt (up to £150), and leave the remaining event as taxable. HMRC allows employers to choose which events to designate, which means you should always designate the most expensive event first (up to the limit) to maximise the exempt amount.
The calculator above automatically finds the optimal designation — maximising the exempt portion while identifying any taxable excess event.
What Happens When the Limit Is Exceeded?
This is the critical point that catches many employers out. The £150 limit is a cliff edge, not a taper. If your event costs £151 per head, the entire £151 is a taxable benefit in kind — not just the £1 over the limit. There is no partial exemption.
When an event becomes a taxable benefit, the employer must report it on form P11D for each employee who attended. The employee pays income tax on the benefit via their tax code or self-assessment. The employer pays Class 1A NIC (13.8% or 15% from April 2025) on the gross benefit.
Alternatively, the employer can enter a PAYE Settlement Agreement (PSA) with HMRC, paying both the tax and NIC on the employee's behalf. This is often administratively simpler for small amounts and avoids the need to report on individual P11Ds.
Example Calculations
| Scenario | Total cost | Attendees | Per head | Result |
|---|---|---|---|---|
| Christmas dinner for 20 staff | £2,800 | 20 | £140 | Exempt — no P11D |
| Christmas dinner for 20 staff | £3,200 | 20 | £160 | Taxable — £160 each |
| Summer BBQ (20 staff + 20 partners) | £2,500 | 40 | £62.50 | Exempt — within £150 |
| Two events: £80/head + £90/head | Combined £170/head | — | £170 | Designate £80/head event as exempt; £90/head event taxable |
| Two events: £60/head + £80/head | Combined £140/head | — | £140 | Both exempt — combined under £150 |
Frequently Asked Questions
What is the £150 per head staff party exemption?
HMRC allows employers to hold annual staff functions without creating a taxable benefit in kind, provided the total cost per head (including VAT, food, drink, accommodation and transport) does not exceed £150 per attendee per tax year. The £150 is an annual limit across all qualifying events, not per event.
Does the £150 limit include VAT?
Yes. The £150 per head limit is inclusive of VAT. You must include the VAT-inclusive cost when calculating the per-head figure. This is important because many venues quote prices excluding VAT.
Can I hold two events in a year and still use the exemption?
Yes, you can hold multiple events. However, the total per-head cost across all events you designate as exempt must not exceed £150 per year. You can choose which events to designate — optimise by picking the combination that keeps the total under £150. Any events not designated (or the excess event) are taxable.
What happens if the cost exceeds £150 per head?
If the cost per head exceeds £150, the entire cost of the relevant event becomes a taxable benefit in kind — not just the excess. So if the cost is £160 per head, the full £160 is taxable, not just £10. This is a cliff-edge rule that makes staying under £150 very important.
Who counts as an attendee for the per-head calculation?
The total cost is divided by the total number of people present, including both employees and any guests they bring (such as partners or spouses). If 20 employees each bring a partner, the total attendee count is 40. This means bringing guests effectively halves the per-employee budget.
Can the employer pay the tax on an employee's behalf?
Yes. Employers can enter a PAYE Settlement Agreement (PSA) with HMRC to pay the tax and Class 1B NIC on behalf of employees for taxable benefits, including staff entertainment that exceeds the £150 limit. This avoids the need to report the benefit on individual P11Ds.
Does the exemption apply if only some staff are invited?
The exemption requires the event to be open to all employees at the location or department. If only selected employees are invited (such as senior management), the exemption may not apply. However, different departments or locations can hold separate qualifying events.
Is the cost of travel to the staff party included in the £150?
HMRC guidance indicates that the total cost should include all incidental costs associated with the event, which can include transport and accommodation where provided. If the employer arranges coaches or hotel rooms, these costs add to the per-head calculation.
What Class 1A NIC rate applies to taxable staff entertainment?
Employers pay Class 1A NIC at 13.8% on most taxable benefits in kind reported on P11D. From April 2025 the rate increased to 15% — check current rates. If using a PSA, the employer pays Class 1B NIC at the same rate. Employees also pay income tax on the benefit via their tax code.
Can sole traders use the staff party exemption?
The exemption is specifically for employer-provided benefits to employees. A sole trader with no employees cannot use the exemption. If a sole trader has employees, those employees can benefit from qualifying staff events. The sole trader's own entertainment costs remain non-deductible.
Do virtual or remote Christmas parties qualify?
HMRC confirmed that virtual events can qualify for the annual function exemption, provided the event is open to all staff and the per-head cost stays within £150. This approach continues to be available for remote or hybrid teams.
What records should I keep for a staff party?
Keep the invoice showing the total cost and VAT, the guest list (employees and guests), the date and venue, and details of what was included. If you have multiple events in the year, document which events you designate as exempt and the per-head calculation for each. Good records protect against HMRC challenge.