For further information on any of the above or the wider aspects of business and staff entertainment, off site events etc, their tax treatment, and other available tax exemptions, please contact our employment solutions team.
Staff Festive Celebrations and Gifts: taxable benefit?
29 September 2026
As employers look towards the festive season, understanding the tax implications of staff parties and seasonal gifts should be an important element in the planning to avoid unexpected liabilities.
The careful use of two widely used tax exemptions will help, but as with many tax considerations, navigating your way through the qualifying conditions is not always straightforward. We summarise these below to get you started!
The Annual Parties and functions exemption
This statutory exemption for spends of up to £150 per head on an annual party or function is commonly relied upon by employers and employees alike to avoid any HMRC charge that a benefit in kind and associated income tax and national insurance liabilities have arisen.
Key things to remember, however, are that:
The event must be held on a recurring annual basis (e.g. Christmas parties, other festive celebrations, summer barbecues etc.) rather than a one-off e.g. to mark a one off anniversary.
It needs to be open to all staff or all the staff based at a location where the employer has multiple locations
The £150 is capped: if you go over that amount, the entire expenditure becomes a taxable benefit.
Whilst you can use the £150 exemption over more than one qualifying event e.g. Christmas and a summer barbeque, it doesn’t go far! If the combined costs exceed this amount, one event will not qualify. You can decide which, based on which makes best use of the exemption.
When calculating the cost for these purposes, it’s necessary to look beyond the central venue, food and entertainment costs and to include transportation, overnight accommodation etc, remembering again the VAT element!
It’s only when you have worked out this total cost that you can then calculate the cost per head by dividing it by the number of confirmed attendees (not just employees). That point about the average being based on the total number of attendees can make quite a difference to the result if, for example, partners and other guests attend!
The Trivial Benefits Exemption
Beyond or instead of the party, generous employers may choose to provide a seasonal gift to their employees which, provided it is not too generous, might be exempt under the separate rules governing “trivial benefits”.
To qualify, however, the gift needs to meet all of the following criteria:
The cost must not exceed £50 (VAT inclusive). Any higher and the entire amount is taxed.
The employee must not be entitled to the gift as part of a contractual obligation or salary sacrifice scheme.
The gift must not be cash or cash vouchers (a voucher exchangeable for cash). Turkeys, wine, hampers or whatever else might be thought appropriate to the season are therefore what typically fall to be considered.
HMRC do not accept that the exemption applies where an employee is reimbursed the cost or picks up their bill. The gift needs to have been bought by the employer themselves.
The benefit must not be given in recognition of specific services or employment duties performed i.e. a seasonal gesture of goodwill rather than a reward for all the employee’s hard work during the year!
Finally, where the employer is a close company, directors and other office holders receiving such gifts will also need to be conscious of the annual tax year cap of £300 on all gifts which have been made under the trivial benefits exemption.
If exemptions don’t cover the cost?
Unfortunately, it is not always possible to get the costs of staff entertainment within an exemption and to prevent employees from otherwise receiving an unwelcome tax bill, employers may then choose to meet the tax and NIC liabilities through a PAYE Settlement Agreement (PSA).
A PSA is essentially a contract entered into between HMRC and the employer whereby the tax and NIC is settled on a grossed-up basis on behalf of the workforce. In doing so, the final tax bill to the employer is therefore markedly greater, be it the administrative benefits of not needing to report separate benefits on form P11d etc and the positive impact on staff morale are often thought to outweigh this.
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