The £150 party allowance or a gift for everyone: which one actually lands?

Early September is when a People team starts to think about the festive season, and asks itself the big question: party, or gift. But that's not a choice you necessarily have to make...

Quick answer: The staff party allowance, properly the annual function exemption, gives you up to £150 per head per tax year for social events open to all employees. Trivial benefits give you up to £50 per person for a non-cash gift. They're two separate exemptions, so on tax grounds you don't have to pick one. The question worth arguing about is which spend reaches the people you're trying to reach.

What does the £150 staff party allowance actually cover?

Annual social functions open to all employees, up to £150 per head per tax year. It's usually called the Christmas party tax allowance - but that nickname is where the trouble starts, because an allowance is something you're given to spend and an exemption is a line you have to stay behind.

Here's what sits inside the £150:

• VAT, so the number you're working to is your gross spend
• transport you lay on for the event, taxis home included
• accommodation, if you're putting people up overnight
• the event itself: venue, food, drink, entertainment, the lot

Which means the evening itself has to come in under £150 a head, not at it. Say you budget £18,000 for 120 people, so exactly £150 each, and spend it on the party: £15,600 on venue and catering, £1,400 on drinks. Then you book taxis home and a few hotel rooms for the team travelling in, another £1,300. You're at £18,300, or £152.50 a head.

That £2.50 costs you the whole exemption. Go a penny over and the entire £18,300 becomes a taxable benefit, not just the excess. Plenty of finance teams have the £150 per head staff party rule filed as "we'll just tax the bit over the line". There is no bit over the line. It's a cliff.

Two more things worth having straight. Per head means the total spread across the people who attend, so a half-empty room pushes your per-head figure up rather than down. And the £150 can be split across more than one annual event, as long as the combined per-head cost stays inside it.

Most importantly: this exemption is separate from and in addition to trivial benefits. A party and a sub-£50 gift aren't competing for the same pot. Almost every article that frames December as "party or gift" is answering a question the tax rules never asked.

Little reminder: we're not tax experts, so consult an expert on these matters!

The real-talk case for the party

A geninely decent party does something a gift just can't. It puts people in a room together, which is the one thing no platform, ours included, can sort for you. Woulda coulda.

That matters more than People teams reaaally want to admit, especially for a team that's grown fast or hired remotely. People who only know each other as names in a Slack channel find out what the other person is like. If your team has never even been in one building at the same time, an evening that fixes that is worth big bucks.

The argument isn't against the party. It's about who isn't in the room...

• the shift working through December, in retail, hospitality, logistics or care, covering the month that pays for everyone else's January
• part-timers whose contracted hours never overlap with a Thursday evening
• the field team two hundred miles from the venue
• anyone with childcare, caring responsibilities or no realistic way home after eleven
• the person who doesn't drink and isn't keen on the 9pm karaoke set

"Open to all employees" is a tax condition that has turned into a culture test without anyone deciding it should. A party that's technically open to everybody and realistically an option for two thirds is the most common way a December budget ends up rewarding the people who already had the easiest year. The invite list and the guest list are different documents, and only one of them shows up in your spend.

Victoria Shaw, Director of Talent & Culture at Cycas Hospitality, put the alternative well. Cycas run hotels, so their people are the ones working while everyone else is at a party. "At Christmas, we were able to send all employees their gifts at the same time, across multiple locations and countries. It created an incredible sense of togetherness." The togetherness came from everyone getting it at once, not from being in one place.

The case for a gift everyone gets

A gift's advantage is reach. It goes to the person on shift, the person on maternity leave, the field team in Leeds and the four who'd have made an excuse anyway, and it doesn't need a December date that suits nobody.

It also hands the decision over. With gift with choice you set the budget and the recipient picks what they actually want, which beats the guessing that produces a hamper half of which gets passed on. A gift kept inside the trivial benefits rules also has no tax or reporting consequence at all, which the detail on the £50 threshold covers properly.

On cost, be careful, because it's easy to fake a saving. A party is a fixed cost: you commit to the venue and catering whether 120 people come or 74, and the difference is money spent on nobody. A gift is a per-person cost, so it scales with headcount rather than turnout. Huggg is free to use and you only pay for the gifts you send, so the arithmetic is one line, budget per person times people.

What a gift doesn't save you is time, unless the sending is built for volume. Laura Wharton, People Partner at Wingstop UK & Ireland, described the old version: "When we were delivering vouchers to a few hundred people one Christmas, we realised that it was taking too long." A few hundred gift cards moved by hand in December is a fortnight of somebody's life. Sent as links, in bulk from a spreadsheet, it's an afternoon. If you're planning now, our note on getting ahead of the Christmas rush is the practical half.

Can you do both?

Yes, and the exemptions being separate is exactly why. A party inside £150 a head for the people who can come, plus a non-cash gift of £50 or less for everybody on the payroll, uses two different rules and neither eats into the other.

For the gift side to stay exempt as a trivial benefit it has to be all four of these:

• non-cash, and £50 or less per person including VAT
• not a reward for performance or for work done
• not contractual and not part of a salary sacrifice arrangement
• not cash or a cash voucher, which never qualify

Go over £50 and, same as the party, the whole amount becomes taxable rather than the excess.

There's one trap. A gift handed out at the party can form part of the cost of the event, pulling it into the £150 rather than sitting outside as a trivial benefit. Check that one with your accountant rather than assuming, and if you want the two kept clean, send the gift on a different day. Our wider Christmas gifts and tax piece has the rest of the seasonal picture.

So which one should you pick?

One December budget, forced to choose: we'd send the gift. Not because a party is a bad use of money, but because a reward you have to be able to attend isn't a reward for the people who can't, and the ones who can't are usually the ones who worked hardest in the month you're thanking them for.

We'd pick the party in two situations. First, if your whole team can genuinely get there, small, single-site, sociable, and the room is what you're short of. Second, if the team is new enough that people don't know each other, because introductions don't arrive by link.

If the budget stretches, do both, and nobody spends December working out which list they were on.

Want to see how a send to everyone would look for your team? Take a look at gift with choice and set the budget yourself.

This is general information rather than formal tax advice, so check your own position with your accountant or with HMRC before you commit the spend.

Frequently asked questions

Is the £150 staff party allowance per year or per event?

Per tax year, per head, not per event. You can split it across more than one annual function, so a summer social and a Christmas party can both be covered, as long as the combined cost per head stays within £150 including VAT and extras.

Is a staff party tax free?

It can be, if it meets the annual function exemption: an annual social event, open to all employees, costing no more than £150 per head per tax year including VAT, transport and accommodation. Miss any of those and the cost becomes a taxable benefit.

What happens if we spend £151 per head?

Every penny of the event cost becomes taxable, not only the £1 of overspend. That's the difference between an exemption and an allowance, and it's the most common mistake made with the Christmas party allowance. Build in headroom rather than aiming at the line.

Can we give a gift as well as holding a party?

Yes. The annual function exemption and trivial benefits are separate exemptions, so a party inside £150 a head and a non-cash gift of £50 or under can both be exempt. The one thing to check is timing, because a gift given out at the event may count towards the £150.