Staff Summer Parties and the £150 Tax Exemption
A summer social is one of the easiest ways to thank your team, and a well known HMRC rule can keep it completely tax free. Here is how the staff summer party tax exemption works, what counts, and the traps that catch employers out.
The staff summer party tax exemption lets employers spend up to £150 per person on an annual social event without triggering a tax charge for the business or the people who attend. It is one of the friendliest rules in the tax system, but it comes with conditions that are easy to trip over, and getting one detail wrong can turn a generous gesture into an unexpected bill on next year’s forms. If you are planning a barbecue, a meal out, or a day at the races this summer, here is exactly how the relief works.
What the £150 annual function exemption actually covers
The relief is officially called the annual parties and functions exemption, and it is not an allowance to spend as you like. It is an exemption, which means that if your event meets every condition, the cost is not treated as a taxable benefit for your employees at all. The GOV.UK guidance on social functions and parties sets out the three tests the event must pass, and all three have to be met for the exemption to apply.
First, the event must be annual, such as a summer party or a Christmas do, rather than a one-off celebration for winning a contract. Second, it must be open to all of your employees, or all of those at a particular location if you work across several sites. Third, the cost per head must not exceed £150 including VAT. Miss any one of those and the whole cost, not just the excess, can become taxable. Keeping tidy records of who attended and what you spent is the kind of routine that our bookkeeping team in Widnes builds into a client’s year without any fuss.
How to work out the cost per head
The £150 figure is a cost per head, not a cost per employee, and the sum is simpler than it first looks. You add up the full cost of the event, including food, drink, entertainment, transport, and any overnight accommodation, then divide by the total number of people who attend. That total includes guests such as partners, not just staff, which usually works in your favour because it spreads the cost across more heads.
1Add up the total cost
Include everything the event costs the business, VAT included: venue hire, catering, drinks, a DJ or activity, taxis home, and any hotel rooms you pay for.
2Count everyone who attends
Count all the people actually there on the day, staff and their guests, because the exemption is measured per attendee rather than per employee on the payroll.
3Divide to find the cost per head
Divide the total by the number of attendees. If the answer is £150 or less, the event is exempt. If it is £151 or more, the exemption is lost in full, not just on the £1 over.
4Keep the paperwork
Keep the invoices and an attendee list. If HMRC ever asks, a clear record of the sum showing you stayed within the limit settles the question in minutes.
A worked example makes it clear. Suppose a summer barbecue costs £1,800 all in and thirteen people come along, staff and partners together. That works out at roughly £138 per head, comfortably inside the limit, so the whole event is tax free. Add three more guests and the same £1,800 falls to £112 per head, with even more room to spare.
The £150 is a total for the whole tax year, shared across every annual event. If you hold a summer party at £70 a head and a Christmas do at £90 a head, only one can be exempt, because together they exceed £150. Plan both together so you know which sits inside the limit before you book.
What happens if you go over £150
This is the part that surprises people. The £150 is not a tax free slice off the top. Go a single pound over and the entire cost per head becomes a taxable benefit in kind, reported for each employee. So a £151 per head event is taxed on the full £151, not on the £1 excess. It is an all or nothing threshold, which is exactly why the arithmetic is worth doing before you book rather than after.
If an event does tip over the limit, you have options rather than problems. The benefit can be reported on each employee’s P11D, or the business can settle the tax on their behalf through a PAYE Settlement Agreement so that staff are not left out of pocket for enjoying a party. Deciding which route is cleaner depends on your numbers, and our payroll service handles both routes for employers across Cheshire every year.
Trivial benefits: a separate summer perk
Alongside the party exemption sits a second useful rule that many small employers forget. The trivial benefits exemption lets you give staff a small gift, such as a bottle of wine or a summer treat, worth £50 or less, with no tax to pay, as long as it is not a reward for work and not written into their contract. The GOV.UK trivial benefits rules confirm there is no yearly cap for most employees, though directors of close companies are limited to £300 a year in total.
Used sensibly, the two exemptions work well together. A summer party within the £150 limit and the occasional £50 trivial gift through the year let you look after your team without creating a tax headache. It is the sort of practical planning our business support team talks through with owner managers who want to reward staff properly and keep everything above board.
Common mistakes to avoid this summer
Watch out for these
Treating £150 as a per employee allowance rather than a cost per head across everyone who attends.
Forgetting to include VAT, transport, and accommodation in the total cost of the event.
Holding an invitation-only event for managers, which fails the open to all staff test.
Assuming the excess only is taxed when in fact the whole amount becomes taxable once you pass £150.
Losing the receipts, so there is nothing to show HMRC that the cost genuinely stayed within the limit.
None of these are hard to avoid once you know the rules, and a quick check before you commit to a venue is usually all it takes. If you would like a second pair of eyes on the figures, our taxation team is happy to run through the numbers before you book anything.
Frequently Asked Questions
Is a staff summer party actually tax deductible for the business?
Yes. The cost of staff entertaining is an allowable business expense, separate from the benefit in kind question for employees. The £150 exemption is about whether staff pay tax on attending, not about whether the business can claim the cost. Speak to us for advice tailored to your situation.
Can I claim the exemption if I am the only director with no staff?
Yes, a sole director company can still hold an annual function and use the exemption, because the event is open to all employees even where there is only one. The £150 per head test applies in the usual way, and any partner you bring counts towards the head count.
Does the £150 apply to each event or the whole year?
It is a total for the whole tax year across all annual functions combined. You can hold more than one event, but the exempt events together must stay within £150 per head. If they exceed it, you choose which events the exemption covers, and the rest become taxable.
Do I have to include partners and guests in the headcount?
You include everyone who attends when working out the cost per head, which usually helps because it spreads the cost more widely. A guest’s own share is not a separate benefit to the employee, so counting them in generally makes the per head figure lower, not higher.
What counts towards the cost per head?
Everything the business pays for the event, including VAT: food, drink, venue hire, entertainment, transport home, and any overnight accommodation. Leaving out transport or hotel costs is a common way employers accidentally understate the figure and slip over the limit without realising.
What is the difference between this and a trivial benefit?
The annual function exemption covers events like parties up to £150 per head. The trivial benefits exemption covers small gifts of £50 or less that are not a reward for work. They are separate rules, so a summer party and an occasional small gift can both be tax free in the same year.
Can FD Accountants sort out the reporting if we go over the limit?
Yes. If an event tips over £150 per head, we can report the benefit correctly or set up a PAYE Settlement Agreement so the business settles the tax and staff are not left out of pocket. You get a clear price before we start, in plain English, with no surprises.
Enjoy the summer, keep it tax free
A summer social should be about thanking your team, not worrying about tax. Do the sum before you book, keep the receipts, and the £150 exemption does the rest. If you would like us to check the figures or handle the reporting on anything that goes over, get in touch with FD Accountants for a free initial consultation with no obligation.
Straightforward Accounting. Real Support.
We help employers across Widnes reward their teams the right way, from summer parties to payroll and everything in between.