HMRC has a limit of £150 to be spent on each employee per year before it can be classed as a taxable benefit and has to be declared on the P11D.
If the cost per head for the annual Christmas party is below £150 then it will be classed tax and NIC exempt.
Stipulations are that the party has to be open to all of your employees and the limits apply to both directors and company secretaries also.
The allowable ‘year’ is classed as your company accounting year, not the tax year running from April.
If you start spending more on your employees then the whole event becomes taxable and it will become a tax liability for each of your employees. The total cost per head must include the cost for the party venue, transport and accommodation plus VAT.
If you are generous enough to hold more than one social function in a given year then it is the combined cost of events per head that is the figure you must report.