Your Christmas parties and expenses guide 2025

For Franchisees and Small Business Owners

Christmas party time is just around the corner, and whilst it’s a well-earned chance for you and your team to unwind and have some fun, the most cost-savvy business owners amongst you will be wondering what tax savings are available.

If that’s you then there's a few key things you’ll want to know about, like:

• Exactly what items at an office Christmas party are claimable?
• The list of expenses that are actually tax free
• What kind of things could potentially create a benefit in kind, and how to avoid? 

This guide will make everything crystal clear with HMRC links included so you can double check anything you need. It’s an early gift from the dt group to help you put some pounds back in your Christmas stocking.

What qualifies as a ‘tax free’ staff Christmas party?

To stay completely tax free for your team, your event must meet all three HMRC conditions for an “annual party”.

1. It must be an annual event

That’s once per year in case you don’t know - Christmas parties, annual summer events, or end-of-year celebrations all qualify. See the HMRC guidance.

2. It must be open to all employees

All staff must be able to attend.  If you run multiple sites or franchise locations, you can hold separate parties as long as each is open to all employees at that location.

3. It must cost £150 per person or less (including VAT)

This is not an allowance, it's a strict total cost per head. Go even £1 over and the full cost becomes taxable. Again check the HMRC guidance for more detail.

What is included in the £150 per head calculation?

Franchisees and small businesses often underestimate the total cost, which adds up quickly! But everything, no matter how big or small, must be counted, including:

• Food and drink
  
  
• Venue hire
  
  
• Entertainment
  
  
• Transport
  
  
• Accommodation
  
  
• VAT
  
  
• Any extras or add-ons
  
  

It’s calculated as follows: Total event cost ÷ total attendees = per-head cost. If it is £150 or under, it qualifies. So bear this in mind when planning your budget and buying party supplies. 

What happens if the cost exceeds £150 per head

**If you go even slightly over £150, the entire amount becomes a taxable benefit for your employees.**

If you want the business to cover the tax, you will need a PAYE Settlement Agreement (PSA). 

If you host more than one annual event each year (for example, a summer BBQ and a Christmas meal), you can choose which event to treat as exempt. Naturally most franchisees choose the most expensive one to reduce tax exposure.

(Although you are not limited to one exempt event per tax year. Provided the combined cost per head of your selected events is under £150 per person per tax year.)

Can directors and franchise owners attend

Yes! There’s no danger of FOMO for the boss. Directors are classed as employees for these purposes.

And what’s more:

• Single-director companies with no staff can still claim one annual event per year, within the £150 limit.
  
  

For more info, see what HMRC says about who does and does not need to report. Or, better yet, reach out to us and our experts can advise you by answering any of your specific questions about annual events or tax in general.
 

What about employees bringing guests?

Guests are allowed, but they must be counted in the cost calculation. For example: 40 employees + 10 guests = 50 attendees. If total cost ÷ 50 is within £150 per head, the party qualifies.

What you can claim regarding Christmas gifts, and trivial benefits

Christmas is a great chance to give back to your staff, and for your clients to give back to you. What makes employee and client gifts even more special is that they can be tax free!

Employee gifts

These can be tax free if they meet the trivial benefit rules. Meaning that gifts must be:

• £50 or less
  
  
• Not cash or vouchers that can be exchanged for cash
  
  
• Not a reward for performance
  
  
• Not something they are contractually entitled to
  
  

Also, Directors of close companies can claim up to £300 per tax year in trivial benefits.

Client gifts

These are allowable provided they:

• Cost £50 or less
  
  
• Include clear business branding
  
  
• Are not food, alcohol, or tobacco unless branded
  
  

Office decorations

Even ‘reasonable’ festive decorations for your premises are allowable business expenses, i.e. not 20ft Christmas trees imported from Norway. 

Virtual Christmas parties

You might be surprised to learn that virtual events still qualify for the exemption if they are open to all employees, the total cost per head is within £150 and items such as food, drink, hampers, entertainment or online activities are directly paid for by the business. This was introduced during the pandemic and remains acceptable.

Common scenarios for franchisees and small business owners

Main takeaways from the dt group

So now you’re ready to party with a clear understanding of what you can claim for. To ensure your event puts as much cash back on your books as possible we’ll give you these practical tips to take away.

• Use our record-keeping checklist to ensure you have all the essential documents you need to claim:

• Plan early and keep the £150 limit in mind
• Track guest numbers before confirming venue costs
• Use trivial benefits correctly for small gifts
• Keep all receipts and calculations together
• Ask us to review anything if you are unsure
• A well-planned Christmas event can be completely tax free

If you want us to review your plans or check whether your event qualifies, the dt group team is here to help. Just get in touch and we’ll take care of the rest.