Christmas Party Tax UK 2026/27: The £150 Per Head Rule

A Christmas party or summer event can be free of UK Income Tax and National Insurance when it qualifies as an annual staff function. The familiar £150 per-head rule is not a £150 employee allowance. The event must also be annual, available to employees generally (or generally to employees at a particular location) and calculated using the total cost per attendee.

For 2026/27, the exemption can apply to one annual event or to selected events where an employer provides more than one. If an event is outside the exemption, the full cost per head can become a taxable benefit; it is not normally just the amount over £150. The employer must therefore calculate the event cost and attendance before deciding that a party is tax-free.

The conditions for an exempt annual function

HMRC's exemption applies when the social function:

• is an annual event, such as a Christmas party or summer barbecue;
• is available to employees generally, or generally to employees at a particular location; and
• costs no more than £150 per head.

“Annual” means a recurring event that happens once a year. A one-off party to celebrate winning a contract, completing a project or reaching a company anniversary is not automatically an annual function. It may need to be considered under another benefit or entertainment rule.

The event does not have to be called a Christmas party. A summer barbecue, annual dinner, team-wide celebration or virtual event can qualify if it meets the same conditions. The label in the company policy does not replace the statutory tests.

How to calculate cost per head

The employer calculates the total cost of providing the function and divides it by the total number of people attending. The cost can include VAT, transport and overnight accommodation provided to enable people to attend. Employees' partners and other guests count in the attendance number and can also receive the benefit.

Example: event within the limit

The employer should not divide only by the number of employees if guests attend. Nor should it omit transport or accommodation simply because those costs appear on a separate supplier invoice.

What happens above £150?

If the event costs more than £150 per head, the annual-function exemption does not apply to that event. The £150 is not a tax-free deduction from a larger benefit. For example, a £190-per-head annual party can create a taxable benefit of £190 per attendee, subject to the correct reporting route.

This is different from a personal allowance. The employee does not have £150 of tax-free party spending to use elsewhere, and an employer cannot normally reimburse £200 while reporting only £50 as taxable. Payroll should report the full benefit when the exemption fails.

Two or more annual parties in one tax year

An employer can provide more than one annual function. If the combined cost per head of the functions chosen for exemption is no more than £150, the exemption can cover those selected events. If the combined cost exceeds £150, the employer needs to identify which event or events are exempt and which create a taxable benefit.

Where separate events are held at different locations or for different departments, each event can still qualify when all employees at the relevant location or group are generally able to attend one. Keep attendance and cost records for each event.

Guests, family and household members

Employees' guests can attend an exempt party. Their costs are included in the total per-head calculation, and a taxable event can create a benefit for the employee and for family or household guests who attend. The employer should count everyone who attends, not only the people on payroll.

A company cannot avoid the £150 test by excluding guests from the calculation. Including more attendees can reduce the average cost per head, but the calculation must reflect the actual people and total cost honestly.

Virtual and online parties

HMRC says the exemption can apply to an online or virtual annual party when the other conditions are satisfied. Food, drink or a hamper supplied for the event can form part of the total cost. The employer should document who was invited, the event date, the supplier costs and the total number of attendees.

A virtual event is not automatically exempt because it costs less. It still needs to be an annual function open generally and within the per-head limit. A one-off digital incentive event may have a different employment-tax treatment.

Salary sacrifice and other events

If the function is provided through salary sacrifice, HMRC says the employer must report its value. Salary sacrifice does not create a separate route around the annual-function conditions. A staff party paid from a discretionary employer budget is different from a contractual benefit that an employee can demand.

Do not combine the annual-function rule with the £50 trivial-benefit exemption. A Christmas party is tested under the specific annual-function rules; a small gift or voucher is tested under the trivial-benefit rules. Likewise, a client dinner is business entertainment and is not converted into an exempt staff party merely because an employee attends.

Reporting when the exemption fails

When the function qualifies, the employer generally does not report it or pay tax and National Insurance. When it does not qualify, the employer should identify the taxable benefit and use the appropriate payroll, P11D or PAYE Settlement Agreement route. The event's cost, the guest count and the number of annual functions determine the calculation.

Keep invoices, VAT details, transport and accommodation costs, invitation lists, attendance records and the per-head calculation. These records are also useful where one event is exempt and a second event in the same tax year is taxable.

Employer and employee checklist

Use the UK Salary Calculator→ to illustrate the marginal Income Tax effect of a taxable party benefit, but do not enter a qualifying exempt event as extra salary.

Keep an event-by-event evidence file

The employer should retain the invitation or policy showing who could attend, the date and recurring nature of the event, supplier invoices, VAT, transport and accommodation costs, the attendance count and the calculation per head. If the company holds several functions, keep a separate schedule showing the cost and attendees for each event and the combination selected for the exemption. A bank payment alone does not prove that the annual-function conditions were met.

Where a location or department has its own event, record the employee population that was generally invited and explain why the event was available to that group. Do not describe an event as open generally if only directors, selected performers or a small private group were invited. If invitations were declined, preserve the invitation list and actual attendance separately: the denominator is based on the people attending, not simply the number invited.

Choosing between multiple functions

When several annual functions exceed the combined £150 limit, compare the per-head cost and the business purpose of each event before selecting the exempt combination. The decision should be made for the tax year and recorded before payroll reporting. If an event is cancelled, postponed or materially changes, recalculate the total and check whether another event now becomes the selected exempt function.

Do not split one event into artificial invoices or re-label a taxable celebration as a staff party to fit the limit. A package that includes a meal, entertainment, travel, overnight accommodation or a gift should be reviewed as a whole where those items enable attendance. Separate benefits can have their own rules, but the annual-function calculation must not omit a cost simply because another supplier issued the invoice.

If the exemption does not apply

Ask the payroll or tax team to identify the employee benefit, the reporting route and the period in which it will be reported. A PAYE Settlement Agreement may be appropriate for some benefits, but it is not an automatic way to make an event exempt and has its own application and payment requirements. The employer should not promise that employees will owe no tax until the reporting route is confirmed.

Employees should retain the event details and check the P11D, payrolled-benefit statement or employer explanation if a taxable amount appears. The value may be based on the full per-head cost, not the amount above £150. A guest's attendance can affect the calculation even though the guest does not have a separate employment relationship with the company.

Frequently Asked Questions

For small employee gifts, read Trivial Benefits Tax UK 2026/27. For employer fitness facilities, see Gym Membership Tax UK 2026/27.

Official sources

• HMRC: Social functions and parties — what is exempt
• HMRC: Social functions and parties overview
• HMRC Employment Income Manual: annual parties and social functions
• HMRC: 2026 to 2027 employer PAYE and National Insurance guide
• GOV.UK: Tax-free company benefits

These HMRC and GOV.UK pages are the official references for the annual-function exemption, aggregation of events, reporting and payroll treatment. Recheck the current guidance before finalising an event budget or deciding whether a benefit is taxable.