Mulled Wine, Minus the Paperwork: The £150 Christmas Party Rule for 2026

It is early November 2026, which means two things: mince pies have appeared in the shops, and someone in the office has started a spreadsheet for the Christmas do. The £150 annual party exemption is one of the friendliest bits of the tax code — but it has sharp edges. Get it right and the taxman stays out of the mulled wine. Get it wrong and a festive perk becomes a January paperwork headache.

The £150 rule in one paragraph

For a Christmas party, or another annual function, the cost per head must be £150 or less, including VAT. The event must be open to all employees. If it is, the cost is not a taxable benefit. The limit is per employee, per tax year, and it can be split across more than one annual event — as long as the total cost per head across those events does not exceed £150. If the total goes over, the full amount can become taxable, not just the excess.

Why plus-ones can tip you over

Guests are where small businesses often come unstuck. If you invite partners, the cost of their meal, drinks and any transport you pay for normally goes into the same calculation. The cost per head is usually the total cost of the function divided by the total number of people attending, including non-employees. So a plus-one does not just add a seat — they add to the headcount and change the average.

That can work in your favour. If the venue charges the same for everyone, a partner at the same price does not push the per-head figure above the staff price. But if guests get a different package, or the business pays for taxis home for everyone, the average can creep up. Keep the guest list and the final bill together.

Scenario: the eight-person design studio

A small studio has eight employees. The owner books a meal at £70 per head, plus £25 per head for drinks. That is £95 per head, including VAT. No guests. The event is open to all eight employees. The cost is under £150, so the exemption applies. No P11D, no benefit-in-kind, no Class 1A National Insurance. The owner keeps the invoice, the invite and a note of who attended.

Now add plus-ones. The studio invites eight partners at the same £95. Total cost is 16 × £95 = £1,520. Total attendees are 16. Cost per head is still £95. The event remains within the exemption. But if the partners are given a £150 tasting menu while staff get the £95 set menu, the average changes. Do the maths before you approve the upgrade.

Scenario: the mixed guest list

A marketing consultancy has 12 staff. It books a party for staff only at £140 per head. That is under £150, so far so good. Then the director invites two clients and their partners, and the company pays. Now the total cost is 16 × £140 = £2,240, and the per-head figure is still £140. Fine. But if the director also lays on a £40-per-head wine flight for the top table, the average may cross £150. Once the total cost per head exceeds £150, the exemption is lost — and the full cost can become a taxable benefit for the employees, not just the bit over £150.

What happens if you go over?

If the event fails the £150 test, the cost is usually a taxable benefit for the employees who attend. That can mean reporting on a P11D and paying Class 1A National Insurance, or arranging for the tax to be collected through payroll. It is not the end of the world, but it is a January job you probably do not want. If you have several events in the tax year, add up the cost per head across all of them. You can choose which event to exempt, but the total exempt cost per head cannot exceed £150.

Gifts are a different rule

Do not try to solve a party overspend by calling the difference a Christmas gift. Staff gifts have their own exemption — the trivial benefits rules. A gift can be exempt if it costs £50 or less, is not cash or a cash voucher, is not a reward for performance and is not in the contract of employment. For close companies, there is an annual £300 cap per director or employee for trivial benefits. A hamper, a box of chocolates or a small gift card might fit; a cash bonus does not. Keep the party and the presents on separate lines.

Booking the 2026 Christmas do: a short checklist

• Confirm the event is open to all employees — not just the sales team or the directors.
• Set a budget per head that includes VAT, drinks, transport and any accommodation you pay for.
• Decide the guest policy before you send invites. Will the company pay for plus-ones?
• Count everyone whose cost the company is covering, including guests.
• Divide the total cost by total attendees to get the per-head figure.
• If you run more than one annual event in the tax year, add the per-head costs together.
• Keep the invite, the final invoice and the attendance list.
• If the figure goes over £150, talk to your accountant early about P11D or payroll reporting.
• Treat gifts separately and check the £50 trivial benefit rules.
• Book early, agree the deposit, and keep the paperwork in one folder.

The Christmas do should be a thank-you, not a tax puzzle. A little arithmetic now — before the tinsel goes up — keeps the £150 rule on your side and the January post manageable.