Company parties and events – the £150/head expenses exemption

If you provide entertainment benefits to your employees, your company may be taxed on the value of any perks.

Your company may also have to report the value of such benefits on each employee’s annual P11D (benefits in kind) form, unless the benefit is payrolled.

However, there is one small exception to this rule that you may not know about.

HMRC’s £150/head staff party exemption

If your company organises an event or function for its employees, it can benefit from HMRC’s £150 per head tax-free annual event exemption.

The exemption applies to annual functions, including a Christmas party or summer barbeque.

If your company’s expenditure meets several conditions, it doesn’t need to report the event to HMRC or pay any Class 1A NICs. The entire cost can also normally be offset against the company’s Corporation Tax bill as a staff cost.

The main conditions are:

• The primary function of the event must be to entertain members of staff.
• The total cost of entertaining staff must not exceed £150 per head, per year (including VAT).
• The cost must include all expenses relating to the event(s) including transport and accommodation.
• The event must be open to all employees – not just directors (unless all staff are directors).
• You can hold separate functions under the same rules if your company is based across separate departments or locations.

What if the event exceeds the £150/head threshold?

If the social event (or the combination of events you want to exempt) exceeds £150 per head – even by just £1 – the tax exemption does not apply to that event.

So, if the cost per head – including VAT – is £160 or even £151 – the exemption does not apply!

Importantly, this does not mean the cost automatically becomes non-deductible for Corporation Tax. Staff entertaining costs can still normally be deducted as a business expense.

Instead, the company will normally have to pay Class 1A National Insurance at 15% on the taxable benefit.

The benefit must also be reported to HMRC, unless it is dealt with through an appropriate alternative such as payrolling or a PAYE Settlement Agreement.

Employees may also pay extra income tax on the value of the benefit.

What about multiple events?

It is worth noting that the £150 per head exemption applies per tax year, not per event.

Therefore, the exemption can be split across multiple functions if each event meets the other eligibility criteria.

If the company holds two parties, and the combined cost is under £150 (including VAT) per head, both parties can fall under the exemption.

However, if you have two parties – one costing £120 per head and the other £50 per head – the most expensive one is exempt.

In this example, the £50 event is treated as a benefit in kind – and must be reported or otherwise dealt with under the appropriate benefits rules.

What about guests and one-director companies?

When working out the cost per head, divide the total cost of the function by the total number of people who attend, including employees and any partners or other guests who attend.

A one-person limited company can also use the annual event exemption. If the director is the company’s only employee, an annual event can still qualify. A spouse or partner can also attend, and they count when calculating the £150 per head limit.

Virtual functions included post-pandemic

As we all know, the way many businesses work changed forever due to COVID.

Virtual events are now commonplace, rather than the exception to the norm.

As a result, HMRC added the following clarification in its technical guidance. It is still valid in 2026!

Where an annual function is provided virtually using IT then the exemption is capable of being met provided all other conditions are also satisfied…

Things employers should be aware of

• When calculating the cost per head of a party or event, factor in all costs accrued to enable employees to attend the function, including transport and accommodation.
• The total cost per head must also include VAT.
• Divide the total cost by the total number of people who attend, including partners and other guests, not the number invited.
• The £150/head limit is an exemption, not an ‘allowance’.
• Staff entertaining costs can normally be claimed against Corporation Tax where they are genuine business costs. Client and supplier entertaining is subject to different tax rules and is generally not deductible.
• Keep accurate records of all expenditure, and ensure that any bills or receipts are in your company name.

You can read HMRC’s technical guidance in EIM21690.

You can also read our guide to trivial benefits, which provides a separate exemption for certain small benefits provided to employees and directors.

Read more in our guide to limited company expenses.