Santa, HMRC & The Work Christmas Party

It’s that time of year when Christmas lights twinkle, Michael Bublé reappears from hibernation, and business owners across the UK ask the same question:

“Can I claim the work Christmas party on the business?”

The answer is…Yes!

Well, sometimes. It depends who’s coming, how much you’re spending, what type of business you have, and crucially whether HMRC thinks you’ve been naughty or nice.

Grab a mince pie and let’s unwrap the rules around staff parties, clients, suppliers, partners, VAT, the famous £150-per-head exemption, and what sole traders really can and can’t claim.

🎁 The Golden Rule: The work Christmas party is mainly for staff

HMRC is surprisingly generous if your Christmas party is genuinely a staff event.

To qualify for the tax exemption, the event must be:

• Annual (Christmas, summer BBQ, etc.)

• Open to all staff

• Cost £150 per head or less (including VAT)

Hit those three, and the party becomes:

• A tax-free benefit for staff

• A deductible business expense

• VAT-reclaimable (with a few caveats)

Sole traders and limited companies benefit slightly differently, but more on that in a minute.

🎄 The famous £150 per head rule: How it actually works

HMRC’s £150-per-head exemption isn’t a budget, it’s a limit. Go even £1 over, and suddenly the whole amount becomes taxable, not just the difference. Yes, really. HMRC doesn’t do “close enough.”

➤ What does the £150 include?

• Food

• Drinks

• Entertainment

• Transport

• Accommodation

• VAT

Basically: everything that makes it feel like a party.

➤ Who counts in the headcount?

Everyone attending who is:

• A staff member

• A director

• A staff member’s plus-one

Yes, plus-ones count! Husbands, wives, partners… whoever you’ve persuaded with the promise of free food.

➤ Quick maths example

Your business hosts a party costing £1,500 for 10 attendees:

£1,500 ÷ 10 = £150 per head. Perfect and tax-free.

If the bill creeps to £1,520:

£1,520 ÷ 10 = £152 per head. Oops the whole £1,520 becomes taxable as a benefit.

🍾 Who can you bring? (And what’s allowable?)

Here’s where things get interesting…

👥 Staff — YES

Staff Christmas parties are exactly what this relief is designed for. Whether it’s one employee or 100, the same rules apply.

💑 Staff partners — YES

Partners, spouses, boyfriends, girlfriends are totally fine. Their cost is included in the £150-per-head calculation.

🎉 Example: Emma Ltd invites 5 staff plus 5 partners. Total guests = 10.Cost = £1,200.£1,200 ÷ 10 = £120 per head, so the whole event is allowable.

👨‍💼 Company directors — YES

If your limited company has employees, directors count as staff too.

🎅 Sole traders — it gets a little trickier

A sole trader cannot throw a staff party for themselves alone and claim it. Why? Because you’re not technically your own employee. But if you have staff, the party is allowable for them. You personally just don’t get the exemption.

🎁 Example: Sarah is a sole trader who employs two part-time assistants. She can claim the party for the staff, but not her own plate of turkey.

🧑‍🤝‍🧑 Suppliers — NO

Lovely people. Crucial for business. Sadly, not deductible when entertained.

🤝 Clients — NO

HMRC’s stance on client entertainment is as festive as a January tax bill. It’s never allowable for tax or VAT. You can take them but you just cannot claim them.

🍸 Example: Tom, a consultant, takes a client to a fancy Christmas dinner. Great for relationship-building. Not great for tax relief, the cost is non-deductible.

🎄 Sole traders vs limited companies (the rules compared)

⭐ Sole Traders

You can claim:

✔ Staff Christmas parties (for your employees)

✔ Christmas gifts for staff (within limits). We'll talk more about that next week.

You cannot claim:

❌ A Christmas party for yourself

❌ Your own partner attending

❌ Client or supplier entertainment

VAT:

• You cannot reclaim VAT on sole trader staff entertainment unless it relates solely to employees.

⭐ Limited Companies

You can claim:

✔ A staff Christmas party for employees including directors

✔ Partners of staff

✔ VAT on the allowable portion

✔ The event as a deductible business expense

You cannot claim:

❌ Client entertainment

❌ Supplier entertainment

VAT:

• VAT is reclaimable only on staff entertainment (including director attendance), not client/supplier bits.

  
  

🎅 What if you want more than one party?

HMRC lets you have multiple annual events, as long as the combined total is under £150 per head.

Example:

• Summer BBQ costing £80/head

• Christmas party costing £60/head

Total = £140 → All exempt 🎉

But:

• Summer BBQ at £80/head

• Christmas party at £100/head

Total = £180 → You must choose one event to claim.

(Yes… it seems harsh. HMRC does not approve of excessive merriment.)

🧾 VAT rules in a nutshell

You can reclaim VAT when:

• It’s a staff-only event

• You’re a VAT-registered limited company

You cannot reclaim VAT when:

• Partners or spouses attend (only the staff portion is reclaimable)

• Clients or suppliers attend (VAT blocked entirely)

• You’re a sole trader entertaining only yourself

  
  

🎉 Final thoughts: How to stay on HMRC’s “nice” list this Christmas

To keep things simple:

🎄 Staff = Good

🎄 Staff partners = Good

🎄 Directors (in a limited company) = Good

❌ Clients = No

❌ Suppliers = No

❌ Just yourself = No

Stick to £150 per head, make it an annual event, invite all staff, and your Christmas party becomes joyfully tax-efficient.

Whether you’re planning a luxury dinner, a pub night, or the kind of karaoke party no one will ever speak of again, now you know exactly what your business can claim.

If in doubt... Ask. Nothing says “festive cheer” like knowing your expenses are both compliant and deductible.