Date posted: 1st Nov 2025
Employers wanting to share festive cheer with their staff can do so while staying tax-efficient by understanding exemptions on annual parties and trivial benefits.
Christmas Parties
A Christmas party can be tax-exempt only if it meets these requirements:
- The event is held annually (one-off parties do not qualify).
- It is open to all employees or all employees at a specific location.
- The total cost per attendee (including VAT) does not exceed £150.
The cost per head is the total expense of the event, including catering, entertainment, transport, and accommodation, divided by the total number of attendees (employees plus guests). If the cost exceeds £150 per head, the entire amount becomes taxable, not just the excess.
When multiple annual events occur in a tax year, all are tax-free if the combined cost stays within the £150 per head limit. If the total cost exceeds this threshold, employers should strategically apply the exemption to minimize tax liability.
Events exclusive to particular staff levels, such as only managers, do not qualify for this exemption and are taxable benefits.
Gifts
Employers can provide low-value gifts tax-free under the trivial benefits exemption if all the following conditions apply:
- The gift is neither cash nor a cash voucher.
- The value does not exceed £50.
- The employee is not contractually entitled to the gift.
- The gift is not part of a salary sacrifice arrangement.
- The gift is not given in recognition of work done or to be done
If employees receive gifts regularly and the individual cost is hard to determine, the average cost may be used. Directors and office holders in close companies and their families can only receive up to £300 of trivial benefits annually; no such limit exists for other employees.
PAYE Settlement Agreement (PSA)
If a taxable benefit arises from a party or gift, employers can consider settling the tax liability on behalf of employees through a PAYE Settlement Agreement, spreading goodwill along with tax efficiency.
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