That’s because HMRC has very specific rules around staff entertaining and the much-talked-about £150 per head exemption isn’t quite as generous (or flexible) as many assume.
Here’s what you need to know to stay compliant and stay social.
What Is the £150 Annual Events Exemption?
HMRC allows you to host annual events for your employees and claim an exemption from tax and National Insurance on the costs provided you meet all of the following conditions:
- The event is annual (e.g. summer party, annual dinner)
- It is open to all employees, or to all staff at a single location if the business operates from multiple sites
- The total cost (including transport, accommodation, and prizes) is £150 or less per person
If these three criteria are met, the event is not a benefit in kind, and there’s no need to report it on a P11D or process it through payroll.
So a day out to Wimbledon, Silverstone or a private hospitality box at the races isn’t going to work. HMRC will accept your input VAT claim but won’t be so forgiving on the P11D.
The Catch: It’s a Cap, Not an Allowance
One of the biggest misunderstandings is that the £150 is a per-event allowance. It isn’t. It’s an annual (per tax year) cap.
So if you hold multiple events throughout the year, the combined cost per head must not exceed £150. Go over that, and none of the events qualify for exemption – meaning the whole amount becomes a taxable benefit.
Example: Summer party: £85 per head + Winter/Christmas dinner: £80 per head = £165
Result: The entire £165 becomes a taxable benefit in kind and must be reported to HMRC.
What About Virtual Events or Team Lunches?
Unfortunately, virtual events (like online quiz nights or Zoom wine tastings) don’t qualify, even if they cost under £150 and are open to all.
Ad hoc team lunches or meals after a big project also don’t qualify, unless they form part of a regular, annual pattern and meet the criteria above.
Can Directors Benefit Too?
Yes, directors are employees for tax purposes, so they can benefit from the £150 exemption alongside their team, provided the event is open to all staff and the other conditions are met.
Is the Event Tax-Deductible for the Business?
Yes, where the event qualifies under the £150 exemption, the full cost is an allowable deduction for Corporation Tax purposes. So you get the benefit of team morale and a tax-deductible expense.
Note: If the event includes non-employees (e.g. clients or the family members of your team), you may need to apportion the cost and only claim the employee-related portion as deductible.
Final Thoughts
The £150 exemption is a great way to reward and thank your team, but it’s not a free-for-all. Planning your events with care, keeping detailed records, and doing the sums before the invites go out can help your team enjoy the celebration without an unexpected tax surprise.
Need help reviewing your staff benefits or reporting on your P11Ds? We’re happy to help.