1. Core rule – when is staff entertainment tax efficient?
Business entertainment is normally not tax deductible.
Exception: entertainment that is genuinely for employees (including director-shareholders of companies) can usually be deducted by the business.
But even then, if it’s a taxable benefit in kind for staff, the overall tax and NI can make it inefficient unless an exemption applies.
2. Companies vs sole traders/partnerships
Companies: entertainment of employees and director-shareholders is normally deductible for corporation tax.
Unincorporated businesses (sole traders/partnerships): owners cannot deduct entertaining themselves (no benefit in kind either).
However, if staff entertainment includes the owners (e.g. a staff party), HMRC accepts the full cost (including the owners’ share) as a deductible expense.
3. Mixed entertainment – customers and staff
If an employee entertains a customer (e.g. lunch or dinner), the whole bill is treated as business entertainment.
Result: no tax deduction at all, even for the employee’s share.
To keep relief, separate genuine staff events from client entertainment and do not bundle them together on the same invoice or occasion where possible.
4. The key tax efficient strategies
Staff entertainment is most tax efficient where:
It qualifies as an annual event (e.g. Christmas party, summer BBQ).
Total cost is no more than £150 per head per tax year, including VAT and guests.
Or it falls within the trivial benefits or other benefit in kind exemptions.
In these cases:
The business gets a tax deduction.
Employees pay no income tax on the benefit.
The business pays no Class 1A NIC.
If you need any tax advice in Milton Keynes give a call to the team at Holmes Accountancy on 01908 315716 or contact us here.
The tax tip is provided for general guidance only; further advice should be sought, for specific issues.
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