The £150 Staff Party Rule: Turn Team Events into a Tax-Free Win

Throwing a staff party should feel like a thank-you, not a tax headache. The UK's £150 “annual function” exemption lets you celebrate without creating a benefit-in-kind provided you play by the rules.

What the Rule Really Means Not Just “Free Money”

The Annual Event Exemption allows employers to provide social functions tax-free up to £150 per head per tax year. It's not an allowance you can partially exceed; it's a limit and if an event goes over, that entire event becomes taxable (not just the excess).

To qualify, the event must be:

• Annual (e.g., Christmas party, summer BBQ), and
• Open to all employees (or all employees at a particular location/branch).

Directors count as employees, but director-only dinners won't qualify.

“£150 Per Head” — What Costs Count?

“Per head” means total VAT-inclusive cost of the event divided by the number of attendees (employees + guests).

Include in the total:

• Venue hire, catering/food/drink
• Entertainment (DJ, band, activities)
• Staff travel and (where provided) accommodation
• VAT and service charges

Do not include:

• Normal wages/overtime for your own staff working the event
• Costs already recharged to another business

Guests: Partners/spouses can attend; their share counts in the per-head calculation. The exemption still applies to the employee's benefit if the event qualifies, and the total remains within £150.

The Easy Way to Calculate Your Cost Per Head

1. Add everything up: venue + food/drink + entertainment + travel + VAT.
2. Count attendees: employees and guests who attend.
3. Divide: total event cost ÷ total attendees = cost per head.

Worked example

• Total event cost (incl. VAT): £6,000
• 40 employees, 10 guests = 50 attendees
• £6,000 ÷ 50 = £120 per head ? within the exemption.

Tip: Always calculate using actual attendees, not invitations sent.

Can You Run More Than One Event? Yes—With a Strategy

You can host multiple annual functions in a tax year. The exemption can cover one or more events if the combined cost per head does not exceed £150.

If you run several events:

• You may choose which events to cover with the exemption to get the best outcome.
• If any single event exceeds £150 per head, that event cannot be exempt (but others still can).

Example

• Summer BBQ: £70/head
• Winter party: £95/head
• Combined: £165/head ? you can exempt the £95 event (or the £70) and tax the other. Choose the combination that minimises benefits/PSA cost.

What If You Go Over the Limit on One Event?

If a single event is £151 per head (even by £1), the whole event becomes a taxable benefit-in-kind for employees who attended not just the £1.

Reporting options:

• P11D for each employee attendee (employee pays tax; employer pays Class 1A NIC), or
• PAYE Settlement Agreement (PSA) so the employer bears the tax and NIC centrally, often better for morale and admin.

VAT note: Input VAT on staff entertaining is generally recoverable (check your circumstances). VAT on non-employees' entertaining (e.g., partners) is normally not recoverable, segregate those costs in your records.

Smart Planning: Keep Your Event Tax-Free (Checklist)

• Invite everyone (or everyone at a site/branch).
• Pre-cost the event with VAT and a headcount range; build a 5–10% buffer.
• Track guests (partners) because they lower per-head cost (more attendees) but affect VAT recovery on guest portions.
• Log actual attendees on the night for your final calculation.
• If in doubt, split: two modest events are easier to keep within the combined £150 than one big blow-out.
• Have a Plan B: if you'll exceed the limit, decide PSA vs P11D before invites go out.

Quick FAQs

Does the exemption apply to virtual events?
Yes, if it's a genuine annual function open to all staff and you can evidence the per-head calculation (e.g., hampers/activities shipped to attendees).

Can we run a team-only party?
You can, but it won't qualify for the exemption unless it's open to all employees (or all employees at a specific site/branch). Consider running a separate all-staff event to secure relief.

Do leavers/starters count?
Yes, Eligibility is by attendance, not tenure. If they attend a qualifying event, it can be covered.

Is the £150 figure inclusive of VAT?
Yes. The £150 per head limit is inclusive of VAT and all associated costs (venue, food/drink, entertainment, travel). For wider VAT rules on events and staff entertaining, see our VAT Services page.
What if one event goes over £150 per head by a small amount?

If a single event hits £151 or more per head, the entire event becomes a taxable benefit (not just the excess). You can report via P11D or cover centrally with a PAYE Settlement Agreement (PSA).

Can we host more than one event in a year?
Yes. You can exempt one or more events as long as the combined cost per head you choose to exempt does not exceed £150. If one event exceeds £150, that event can't be exempt but other events may still qualify.

A Final Word: Celebrate Smart, Record Smart

With a little planning, universal invites, accurate headcounts, and clear cost tracking, you can give your team a £150 tax-free treat every year. If you expect to push the limit, model scenarios (guest numbers, travel, entertainment) and choose the mix of events that keeps you compliant and administrative work light. When you do cross the line, a PSA usually offers the cleanest employee experience.
If you need assistance, contact accountants in Bolton — YRF Accountants.