The film opens up with a little girl dropping a letter to Santa into a mailbox. We see Arthur (James McAvoy) reading it, and he hangs it up on a cluttered desk. We're then treated to a fun and cute montage of Christmas Eve night where a large space ship looking 'sleigh' has parked over a large town in Denmark, and hundreds of elves slide down rappel lines along with Santa (Jim Broadbent), and begin dropping off presents in a high tech fashion. The ship's underside is electronically camouflaged to resemble the night sky. The presents are all delivered and the elves and Santa return to the ship.
We see Steve (Hugh Laurie), Santa's oldest son back at the North Pole in mission control, overseeing the operation. Santa and an elf are stuck in a boy's room, and the boy has just woken up. Steve helps get Santa and the elf out of there without the boy seeing Santa. Arthur, it turns out, is Santa's younger son, and he enters mission control with a stack of his letters. (He oversees the letter department.) He makes a mess of everything and knocks down quite a few elves and is asked by Steve to leave. As he's leaving, he hears an elf making a joke of what a mess-up he is. Arthur watches the rest of the Christmas Eve delivery with Grandsanta and Grandsanta's old reindeer, who may or may not be Rudolph.
There is a short scene of an elf in the large ship kicking a wrapped bike off of a raised platform, where it is forgotten and undelivered.
Santa and the elves return and everyone cheers for a successful night. This has been Santa's 70th year delivering presents, and he's slated to retire and allow Steve to become the next Santa. (It seems to be customary to do so after 70.) At a speech where Steve believes he'll be named the new Santa, Santa announces that he's going to remain Santa for next year (and possibly more). Steve is crushed.
The Clause family get together for a dinner celebration where Arthur recommends they play a Christmas board game. Grandsanta (Bill Nighy), Santa, and Steve fight over being the Santa game piece and it ends with Steve storming out. Arthur follows him and tries to give Steve the piece, but Steve just chastises him for leaving a long line of doors open. "It's the North Pole," he says.
Meanwhile, an elf cleaning out the space ship sleigh finds the wrapped bike and alerts Steve. Arthur is there as well. Santa is informed, and the three of them try to decide what to do. Steve says one present is no big deal, and they could ship it to the kid and the kid would get it within five days. Santa inquires about taking the space ship back out, but Steve says it couldn't make the journey again so soon. It has to fly at ridiculous speeds, and he is worried that without maintenance in between flights it could break. Arthur is horrified that a child will not be getting a present from Santa, but Santa decides nothing can be done, and retires to his room. Mrs. Clause (Imelda Staunton) tells Santa that he should retire. "What will I be if not Santa?" He asks. "My husband," she replies. Arthur finds out the girl who is not going to get a present is none other than Gwen, the little girl from the beginning of the film.
Arthur is distraught and tells Grandsanta (Santa's father) about the present. Grandsanta says they should do it themselves and shows Arthur his old sleigh, Eve. (He calls it Evie.) There hidden away too are the grandchildren of the original eight reindeer. Grandsanta calls them one by one in a humorous fashion. (Prancer, Dancer, Bambi, The one with the white, etc.) Grandsanta and Arthur leave on Evie with Grandsanta's old reindeer and the young deer pulling the sleigh. They end up in Toronto, with Grandsanta's map being so old Toronto is not on it. They wreck quite a few things and discover a stow away elf Bryony who is an expert at wrapping. At one point a man mistakes Arthur and the sleigh for an alien and his ship. Thus, the governments of the world start tracking the sleigh and preparing for an alien invasion.
They end up in Africa, and are attacked by lions but they narrowly escape and the elf explains she has a fancy hand held computer which they can use instead of the map. Steve meanwhile has found out about Arthur and Grandsanta leaving and tries to contact them with the help of an old elf, but he is unable to do so.
Arthur makes it to Gwen's hometown only to find out he's actually in a Mexican town with the same name. They take back to the sky. Arthur has found out that Gandsanta cares little about the girl getting her present and wants only to be able to show Santa and Steve that the old way is still viable.
Eve had lost some reindeer in Africa, and now loses a couple more. Arthur and his companions crash on a beach, while the sleigh streaks off upside down. Arthur is discouraged and for a moment doesn't care about getting Gwen her bike. Grandsanta and Bryony give him a pep talk, and he floats up with the help of the same stuff that makes the reindeer fly and manages to get back on the sleigh and right it. He picks up Grandsanta and Bryony, and they continue on towards Gwen's.
Meanwhile, Steve and Santa have taken the space ship out to give Gwen a new, better bike, and then they plan on picking up Arthur and Grandsanta. They end up in the same Mexican town, and Steve has to wrestle the bike away from a small boy.
Arthur makes it to Gwen's town just as the sun is beginning to rise and Grandsanta sacrifices Evie to a military drone which is trying to shoot the 'UFO' down. Bryony wraps the bike as Arthur rides it to the house but he's a second too late. The sun is up, and Gwen stirs in her sleep as the light hits her face. Then the space ship sleigh appears over head and resembles the night sky and Gwen goes back to sleep. Santa, Arthur, Grandsanta and Steve independently make their way into the house where they meet up outside the living room. Arthur tells Santa to leave the bike, but Santa thinks Arthur should do it. They hide and watch Gwen open her bike. Santa says that after seeing how Arthur was the only one who truly cared about getting Gwen the bike for all of the right reasons, that he should be the one to take his place.
We see what has happened with a year later montage. Santa is retired and hangs with Grandsanta. Bryony is promoted to Vice President of wrapping. Steve is mission control leader, and Arthur is Santa.
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