Where an annual Christmas party is open to staff generally, HM Revenue & Customs (HMRC) will treat expenditure of up to £150 per head per annum as tax free. ‘£150 per head’ means the total cost of the function, including VAT and any transport or accommodation provided by employer, divided by the number of people attending. Should the cost rise to more than £150 per head, HMRC shall claim the full amount of tax for the benefit divided among the relevant employees.
The concession applies to Christmas parties or other annual functions and what the HMRC charmingly call “dinner dances”, but only if the function is open to ALL staff. If, for example, you were to hold a Christmas party solely for directors, tax would be levied on the benefit, regardless of the cost per head.
You can claim the concession on more than one party – but providing that the total cost per head of all parties does not come to more than £150. If that is the case, then each function will be looked at and the most beneficial function with a cost per head of less than £150 will be exempt.