Get the Most Tax Efficiency from Staff Entertaining This Year

Hayley Meagher BFP FCA
Dec 19, 2025
2 min read

Staff entertaining is one of the most tax-efficient ways for a business to say thank you, but only if it’s done properly. With a bit of planning and good record-keeping, you can enjoy festive celebrations while keeping the taxman happy.

Here’s how to make the most of it

1. Know the £150 per head rule

HMRC allows annual staff events (such as a Christmas party or summer event) to be tax-free for employees if:

The total cost is £150 per head or less
The £150 includes VAT, food, drink, venue hire and entertainment
The limit applies per employee, per tax year, not per event

⚠️ Go over £150 and the entire amount becomes taxable, not just the excess.

2. Keep receipts to reclaim the VAT

VAT can usually be reclaimed on staff entertaining, but only if you can prove the cost.

Best practice:

Keep full VAT receipts
Ensure invoices are made out to the business
Clearly label expenses as staff entertaining, not client entertaining

No receipt usually means no VAT recovery.

3. Be careful with mixed entertaining

If staff and clients attend the same event:

VAT and tax relief can usually be claimed on the staff portion only
The client element must be excluded
Costs should be reasonably apportioned and documented

Good records make all the difference here.

4. Small gifts can be “trivial benefits”

Instead of (or as well as) an event, small staff gifts can be very tax-efficient.

A gift is usually tax-free if:

It costs £50 or less per person
It’s not cash or a cash voucher
It’s not provided as part of a contractual reward

Examples include:

Bottles of wine
Hampers or chocolates
Gift cards with small balances

Directors of close companies can receive up to £300 per year in trivial benefits.

5. Alcohol choices matter

Alcohol is allowed for staff entertaining and trivial benefits, but:

It must be reasonable in cost
It must be clearly for staff, not clients
VAT is reclaimable only where it qualifies as staff entertaining

Lavish or excessive spending can attract HMRC scrutiny, so moderation helps keep things straightforward.

6. Plan ahead, not after the event

The most common mistakes happen when entertaining is arranged last-minute.

To stay tax-efficient:✔️ Set a budget per head✔️ Track cumulative annual spend✔️ Keep receipts and attendee lists✔️ Separate staff and client costs clearly

Final takeaway

Staff entertaining is one of the few areas where businesses can still enjoy full tax relief and VAT recovery — but only if the rules are followed.

A little planning now can prevent unexpected tax bills later and ensure your festive spending works just as hard as you do.

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