The cost of a staff party or other annual entertainment is generally allowed as a deduction for tax purposes. If you meet the various criteria outlined below then there is no requirement to report anything to HMRC or pay tax and National Insurance. There will also be no taxable benefit charged to employees.

1. An annual function offered to staff generally is not taxable on those attending provided that the average cost per head of the function does not exceed £150.
2. The event must be open to all employees. If a business has multiple locations, then a party open to all staff at one of the locations is allowable. You can also have separate parties for separate departments, but employees must be able to attend one of the events.
3. There can be more than one annual event. If the total cost of these parties is under £150 per head, then there is no chargeable benefit. However, if the total cost per head goes over £150 then whichever functions best utilise the £150 are exempt and the others taxable.
4. It is not necessary to keep a running total by employee but a cost per head per function. All costs including VAT must be considered. This includes the costs of transport to and from the event, food and drink and any accommodation provided.

Note, the £150 is an exemption and not an allowance. This means that any costs over £150 per head are taxable on the full cost per head.

It is highly recommended when planning a staff party or other annual event to aim to stay within the parameters outlined above to ensure there is no additional tax cost to the party.