A staff party or an annual function qualifies as a tax-free benefit for your employees providing that you meet the following conditions:
The total cost must not exceed £150 per head, per year.
£150 includes VAT together with any extra costs such as transport and accommodation.
The £150 is a limit and not an allowance: if the cost is £151, the whole benefit is taxable.
The event must be primarily for entertaining staff.
The event must be open to all staff (in that location, if you have several branches or departments).
The event is not just to be for directors, unless all your staff are directors.
The cost of the whole event is an allowable expense for your business.
You can claim back input VAT but this may be restricted where you are also entertaining customers.