Is staff Christmas parties and events
tax deductible?

Yes. The cost of entertaining your employees, such as a Christmas party or summer barbecue, is an allowable business expense, unlike entertaining clients (HMRC BIM45000). For the employees, an annual event open to all staff and costing £150 a head or less is free of tax and National Insurance (GOV.UK).

The rules on entertainment are strict for clients and relaxed for staff. Taking your team out for a Christmas meal is a normal cost of employing people and is deductible. The £150 figure people remember is a separate rule, about whether the employees pay tax on the event as a benefit, not about whether you can deduct it.

Is staff Christmas parties and events tax deductible?

The HMRC rule

Entertaining your own employees is allowable, unless it is incidental to entertaining customers. An annual event open to all staff costing £150 or less a head is also tax-free for the employees. The rule comes from HMRC Business Income Manual BIM45034: entertainment of employees, Expenses and benefits: social functions and parties.

HMRC's manual explains that the ban on deducting entertainment does not apply to entertainment of employees, unless it is incidental to entertaining others (BIM45000). GOV.UK says that for employees, a party or similar function is exempt from tax and reporting if it is open to all employees, annual, and costs £150 or less per person, including online events (social functions). Entertaining clients and other non-employees is disallowable (SA103F notes).

When you can claim it

• A Christmas party, summer barbecue or team meal for your employees.
• Venue hire, food, drink, entertainment and transport for a staff event.
• Your own share of the cost when you attend with your staff.
• Events above £150 a head, which remain allowable but become a taxable benefit for staff.

When you cannot

• A party or meal for yourself alone, or with friends and family who are not employees.
• The cost of clients, suppliers or other guests at the event, as business entertainment.
• Events that are really a reward for a few selected staff dressed up as a party, without reporting them.
• Subcontractors’ share, which is business entertainment, not staff entertainment.

What to claim instead

If you have no employees, there is no staff entertainment to claim. Meals and drinks for yourself are personal, and taking clients out is business entertainment, which is not allowable. The staff rule is only for the people you employ.

How to decide if you can claim it

1. Was it for the business? A cost is only allowable if you incur it wholly and exclusively for the business. If it also serves a personal purpose that cannot be separated, such as clothing that keeps you warm or a meal that keeps you going, HMRC disallows it.
2. Is part of it personal? Where a cost has a business part you can identify, such as the business calls on a phone bill or the business miles in a car, you claim that part and leave the rest out, on a reasonable basis you can explain.
3. Is it a running cost or something you keep? It is a running cost, so on the cash basis it counts when you pay it and on traditional accounting when you incur it. Nothing about it needs spreading over later years.
4. Is there a specific rule? For staff Christmas parties and events, the deciding rule is staff parties and events: entertaining your own employees is allowable, unless it is incidental to entertaining customers. An annual event open to all staff costing £150 or less a head is also tax-free for the employees.

Worked example: a hair salon’s Christmas meal

A salon owner takes her five employees out for a Christmas meal costing £600, £100 a head including her own place. The £600 is allowable in full, and because it is an annual event open to all staff costing under £150 a head, the employees pay no tax on it. If she brought two clients, their share would be disallowed as business entertainment.

How the £150 limit works

The £150 is per head for the year, including VAT and costs such as transport and accommodation, divided by everyone attending, including guests. If the total of qualifying annual events is £150 a head or less, they are all exempt. If one takes it over £150, only the events that fit within £150 can be exempt, and the rest must be reported. It is not an allowance: a £151 event is taxable in full for the employees.

Above the limit

If an event costs more than £150 a head, or is not open to all staff, it is still an allowable expense for the business. The difference is for the employees: the event is a benefit in kind, reported on form P11D or through payroll, with Class 1A National Insurance for you. Many employers settle the tax for staff through a PAYE Settlement Agreement instead.

Staff, guests and subcontractors

Only employees count as staff for this rule. Partners of employees attending are usually treated as part of the staff event. Clients, suppliers and self-employed subcontractors are not employees, so their share of the cost is business entertainment, which is disallowed. Split the bill by head count and record the numbers.

Online and separate events

The exemption also covers online or virtual parties. If you have more than one location, an event open to all staff at one location counts, and separate departmental parties are fine as long as every employee can attend one of them.

Where it goes

Staff entertainment goes in wages, salaries and other staff costs, box 19 of the full self-employment pages, or other business expenses. Keep it apart from client entertainment, which goes in the disallowable column.

Where it goes on your return and in MTD

For a sole trader, the allowable part goes under wages, salaries and other staff costs (SA103F box 19 on the full self-employment pages). Under Making Tax Digital for Income Tax, it goes in the same category of your quarterly update, which is the category TapTax files it under when you record the cost.

If your turnover was under £90,000, you can use the short self-employment pages (SA103S), which ask for a single figure for total allowable expenses rather than a box-by-box breakdown, and the full pages let you give just a total in box 31 too. The category still matters for your own records and for Making Tax Digital, where each quarterly update uses the same categories unless you choose to send one consolidated figure.

Most sole traders now use the cash basis, the default from the 2024/25 tax year, which counts a cost when you pay it. On traditional accounting you count it when you incur it, and equipment you keep goes through capital allowances rather than expenses.

How much an allowable cost saves

The value of a deduction is the tax it removes from your profit, not the cost itself. At the basic rate a sole trader saves 26p for every pound of allowable expense, at the higher rate 42p, and in the personal allowance taper between £100,000 and £125,140 as much as 62p. Landlords pay no Class 4 on rental profit, so they save 20p or 40p.

What £1,000 of allowable expense saves a sole trader in 2026/27

• Basic rate (20% + 6%)£260
• Higher rate (40% + 2%)£420
• Additional rate (45% + 2%)£470
• Allowance taper band (60% + 2%)£620

Records to keep

Keep the invoices, the guest list showing who was an employee and who was not, and the cost per head. The per-head figure decides whether employees pay tax on the event, and the guest list decides how much of it is allowable.

From 6 April 2026, sole traders and landlords with qualifying income over £50,000 keep these records digitally and send quarterly updates under Making Tax Digital, falling to £30,000 from April 2027 and £20,000 from April 2028. The MTD requirement checker shows when it applies to you.

Common mistakes

• Treating £150 a head as a limit on what the business can deduct.
• Claiming the share of clients or subcontractors at a staff event.
• Claiming a party when you have no employees.

Related expenses

This item sits in the wages, salaries and other staff costs category, alongside childcare, employer’s National Insurance, pension contributions, private health insurance, staff gifts and trivial benefits and wages, including family wages. The A to Z of expenses answers the same question for every other cost.

TapTax sorts each cost into the right category as you record it, applies the business share where you set one, and keeps the receipts with the figures, ready for your quarterly updates and final return.