Beginner’s Guide on Staff and Client Entertainment Expenses
Entertaining clients or staff has been proved to bring a number of advantages. For example, giving rewards to employees for their hard work increases their morale and builds loyalty. On the other hand, spending time with clients h

Employers can provide staff entertainment tax-free under two main exemptions: the annual function exemption of £150 per head (including VAT) for events open to all employees, and trivial benefits of up to £50 per item that are not cash or rewards for work. Staff entertaining is generally deductible for the company, but entertaining clients is not.
This guide explains how the £150 annual function exemption works, how trivial benefits apply, what is and is not deductible, VAT treatment, record keeping and examples such as the office Christmas party. For wider help on company costs, read our guide to allowable limited company expenses.
Staff entertaining at a glance
| Type | Tax treatment | Key limit |
|---|---|---|
| Annual staff function (party, summer event) | No taxable benefit for employees if the exemption conditions are met | £150 per head per tax year, including VAT, for all attendees |
| Trivial benefits | No tax or National Insurance if conditions are met | £50 per benefit; £300 a year cap for directors of close companies |
| Client entertaining | Not deductible for Corporation Tax or income tax; VAT usually cannot be reclaimed | No relief |
| Staff entertaining that is incidental to client entertaining | Treated as client entertaining | No relief |
The £150 annual function exemption
If an employer provides a party or similar function that is open to all employees, there is no tax or National Insurance for employees as long as the total cost per head is £150 or less in the tax year. The cost includes VAT and extras such as transport and accommodation provided for attendees, and also covers the cost of guests, such as partners. The function must be annual or similar, for example a Christmas party or a summer event, and open to all staff, or to all staff at a particular location.
Accountants for London individuals and businesses, paid online.
Get an instant quoteBook a free callUsing the £150 across several events
The limit applies to the total cost of qualifying events in a tax year. If you hold a summer event costing £60 per head and a Christmas party costing £90 per head, the total is exactly £150 and both are exempt. If you spend more than £150 per head across events, the exemption does not apply to the whole amount for that year, and you may need to report a taxable benefit or use a PAYE Settlement Agreement.
Worked example
A London agency with 20 staff holds a Christmas party costing £3,300 including VAT, which is £165 per head. Because that is over £150, the exemption is lost for that party. The agency could instead keep the cost to £150 per head, or £3,000 in total, to keep the exemption, or agree a settlement with HMRC. Planning the budget before booking avoids an unexpected tax charge.
Trivial benefits
Small gifts and treats can be tax-free if they meet all of these conditions: the cost of providing the benefit is £50 or less per employee, it is not cash or a cash voucher, it is not a reward for work or performance and it is not part of the employee’s contract. Examples include a bunch of flowers, a box of chocolates or a birthday gift. Directors of close companies and their families are limited to £300 of trivial benefits in a tax year. You can use trivial benefits alongside the annual function exemption.
Client entertaining is different
Entertaining clients, suppliers or prospects, such as taking a client to dinner or a match, is not deductible for Corporation Tax or income tax and the VAT cannot normally be reclaimed. If you entertain a mixed group of clients and staff, the staff cost is treated as client entertaining if it is incidental to the client event. Gifts to clients are a different category: they can be deductible if they cost no more than £50 per person per year, are branded and are not food, drink, tobacco or vouchers. See our expenses article.
VAT on staff entertaining
VAT on staff entertainment can normally be reclaimed because it is a business expense, subject to valid invoices and the entertainment being for employees. VAT on client entertainment cannot be reclaimed. When a function is for both staff and clients, you must apportion the VAT between them. Keep invoices showing the number of attendees and who they were.
Records to keep
- Invoices and receipts for the event.
- A list of attendees showing employees and any guests.
- Evidence that the event was open to all staff.
- A record of the cost per head and your annual running total.
- For trivial benefits, a note of the date, recipient and cost.
Staff entertaining and employee gifts in London
London companies often hold events in higher-priced venues, so the £150 per head limit can be reached quickly. A meal at a central London restaurant plus transport home may take you over the limit, so check totals before you book. Small firms in areas such as Shoreditch, Soho and Canary Wharf often use smaller venues or split events across the year. We help companies in every borough keep entertainment and staff benefits compliant. See our limited company packages and payroll service.
Common mistakes with staff entertaining
- Spending more than £150 per head without realising.
- Excluding some staff from the event and losing the exemption.
- Treating client entertaining as staff entertaining.
- Giving cash or vouchers as a trivial benefit.
- Not keeping an attendee list and invoices.
PAYE Settlement Agreements for larger events
If an event is not covered by the £150 exemption or trivial benefits, you can ask HMRC for a PAYE Settlement Agreement, under which the employer pays the tax and National Insurance on the benefits instead of the employees. The employer pays income tax on a grossed-up amount and Class 1B National Insurance, so the cost is higher than the benefit itself. It can be useful where benefits are irregular or too small to put through payroll for each person.
Checklist before you book a staff event
- Work out the total cost per head including VAT, travel and accommodation.
- Check what other events you have already held this tax year.
- Confirm that the event is open to all employees or all at one location.
- Keep invoices and a list of attendees and guests.
- Check whether any clients attend, which changes the tax treatment.
- Decide whether to keep within £150 or agree a settlement for extras.
Other staff perks and their tax treatment
Several other perks have their own rules, such as cycle to work schemes, eye tests for screen users, workplace parking and employer pension contributions. Some are tax-free if conditions are met, while others are taxable benefits that must be reported. If you are planning a package of benefits for your team, ask us to check the tax treatment first so you give staff what you intend without surprises.
Frequently asked questions
What is the staff entertaining allowance?
The annual function exemption lets employers provide staff events tax-free up to £150 per head per tax year.
Does the £150 include VAT?
Yes. The £150 limit includes VAT and any costs such as transport or accommodation provided.
Can directors use the exemption?
Yes, as employees, provided the event is open to all staff.
Can I claim client entertaining as a business expense?
No. It is not deductible, and VAT cannot normally be reclaimed.
What are trivial benefits?
Small gifts costing £50 or less per employee that are not cash, a reward for work or part of a contract.
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