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

As a limited company owner, you may feel that the tax system does you few favours. However, all is not lost, as there is still one benefit available to contractors each year, albeit a small one.

This is the favourable tax treatment for your company’s annual staff event — often a Christmas party, but it could equally be a summer outing or another annual function.

There is no specific allowance for a “Christmas party” as such. However, HMRC does provide limited tax relief against the cost of holding an “annual event” for your company, providing certain conditions are met.

This exemption was extended to cover virtual events due to the pandemic (see below for details).

Outside of this specific exception, staff entertainment is considered a Benefit in Kind, whereby employees are taxed on the value of benefits they receive each year. Employers also have to pay extra National Insurance on the value of any perks they provide to their staff.

Table of contents

• How does the £150 per person exemption work?
• What if the event exceeds the £150 per head threshold?
• What about multiple events?
• What about reclaiming VAT on the party expenses?
• Virtual events are also allowed in the post-COVID world
• Things employers should be aware of
• Further information

How does the £150 per person exemption work?

As a company director, you can provide an annual event for yourself, any staff you employ, and your partner and reclaim the costs against the company, as long as the cost per head does not exceed £150 (including VAT).

The cost per head can include accommodation, transport, food, and drink, but must not exceed the £150 threshold, even by a penny. The event must also be open to all company staff to attend.

You can hold several events throughout the year, but the total claim for all events must not exceed this threshold. So, you may claim a summer event rather than a festive one. It’s up to the company directors.

Importantly, as with all expense claims, you must hold an event to reclaim the costs against your company. You can’t simply make a cash claim for £150.

To calculate the cost per head, HMRC states that you should divide the total cost of each function by the total number of people (including non-employees) who attend.

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

If the social event (or the total annual cost of events) exceeds £150 per head, even by just £1, then the exemption does not apply.

So, if the combined cost per employee, including VAT, is £160 or even £151, the exemption does not apply.

In this case, the company must pay Class 1A National Insurance on the total sum of the event costs. The costs must be reported in full to HMRC so that National Insurance payments can be calculated and paid accordingly.

Employees also pay extra income tax on the value of any benefits in kind reported on their P11D.

What about multiple events?

It is worth noting that the £150 per head exemption applies per employee per 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, costing under £150 (including VAT) per employee, the combined cost of both parties falls under the exemption.

However, if you have two parties — one costing £120 per employee and the other £50 per employee — only events that keep the total within £150 per head can be covered. If the total for the year goes over £150 per head, the exemption cannot be applied in part.

What about reclaiming VAT on the party expenses?

HMRC VAT Notice 700/65 states that you cannot reclaim the VAT element on your party expenses if only directors and their partners attend the event. This is because the goods or services are not used for a business purpose.

However, you can reclaim the input VAT if directors and partners attend a staff party alongside other employees. HMRC says: “We accept that the tax is input tax and is not blocked from recovery.”

For one-person companies with no other staff, the exemption can still be applied for direct tax purposes; however, VAT recovery is typically blocked when only the director and partner attend.

Virtual events are also allowed in the post-COVID world

In 2020, due to the COVID pandemic, HMRC confirmed that virtual events also qualify for the exemption, providing that all other conditions are also satisfied as the exemption applies to allow for costs of provision which are generally incurred for the purposes of the event itself.

An example has also been added to EIM21691 to illustrate how a typical virtual event might be reimbursed.

By 2025, the pandemic is long behind us, but the virtual event treatment remains in the guidance.

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 include VAT.
• Divide the total cost by the number of people who actually attend, not the number invited, to arrive at the cost per head.
• The £150 per head limit is an exemption, not an allowance. You can only claim for the costs of staff entertainment against your Corporation Tax bill if they are genuine business costs.
• Keep accurate records of all expenditure, and ensure that any bills or receipts are in your company’s name.

You can read HMRC’s technical guidance in EIM21690.

Further information

As with many other tax rates and bands, this exemption hasn’t increased with inflation. Had it done so since its introduction in April 2003, limited company owners could claim around £265 per person by 2025.

For a detailed explanation of the annual event expense rules, see EIM21690 and the related examples on GOV.UK.

For an overview of all the typical business expenses you will encounter as a limited company owner, read our expenses guide.