Guidance on Staff Entertainment and Subsistence

There are various rules around providing food to staff, staff entertaining and allowable expenses when travelling for business. 

Limited Companies can claim corporation tax relief for food expenses incurred by employees (including directors) while traveling for business purposes. This includes both short-term business trips and travel to temporary workplaces.

Allowable Travel and Subsistence Expenses

Expenses for employees performing their duties away from their usual workplace are generally allowable. For instance, if an employee must stay overnight at a client’s premises due to distance, their accommodation and subsistence costs are typically covered.

• Reasonable Costs: While there’s no fixed limit, expenses must be “reasonable.” Companies should establish a consistent policy across all staff regarding the type of accommodation permitted for business trips.
• Tax Deductible & VAT Recoverable: These expenses are fully tax-deductible for the company, and the associated VAT can be reclaimed.
• Not a Taxable Benefit (Generally): Such expenses are usually not considered a taxable benefit for the employee, unless a per diem allowance exceeds HMRC’s overnight allowance benchmarks.
• Client Entertainment During Travel: If an employee entertains a client while traveling, this is tax-free for the employee. However, the cost of the client entertainment itself is added back for corporation tax purposes, meaning it’s not tax-deductible for the company.
• HMRC Benchmark Rates: HMRC publishes benchmark scale rates that it accepts as allowable costs. Please see guidance here.

Staff entertainment

Providing social events for staff as a reward or team-building exercise, such as Christmas parties, after-work drinks, or celebrations for significant events (e.g., weddings, retirements), is generally allowable.

• Fully Tax Deductible & VAT Recoverable: The costs of staff entertainment are fully tax-deductible for the company, and VAT can be recovered.
• £150 Per Employee Cap: A “cap” of £150 per employee applies from a benefit-in-kind perspective. If the expenditure on staff entertainment exceeds £150 per employee for a particular event, that event and any subsequent events that breach the threshold will be taxable on the employee as a benefit in kind.
• PAYE Settlement Agreements (PSAs): Many employers opt to settle the tax on such benefits via a PAYE Settlement Agreement (PSA) to prevent staff from being taxed directly. However, this can be an expensive option as the expense must be “grossed up.”

Hosting mixed events

Events that include both staff and non-staff attendees (e.g., customers, clients, or staff from other group companies) are categorized as business entertaining. The assumption is that staff are present primarily to host the non-staff, making the dominant purpose business entertainment.

• No Expense Split: The entire cost of such events is treated as business entertaining, meaning no tax deduction for the company and no VAT recovery.
• Not a Benefit in Kind: Crucially, these events are not considered a benefit in kind for the employees, and their cost does not count towards the £150 per employee staff entertainment cap.

Food provided in the office

• Basic Refreshments: The provision of basic refreshments like tea and coffee within the office is generally ignored for tax purposes.
• Tax-Free Office Meals: Rules exist allowing employers to provide meals in the office as a tax-free benefit to staff. These rules are primarily designed for offices with free or subsidized canteens, requiring the offer to be open to all staff (though not all need to participate) and the food to be provided on-site.
• Working Lunches: Similar rules permit tax-free provision of food on-site during meetings, particularly when the food’s purpose is to avoid interrupting the meeting for meals (e.g., a working lunch).
• Reasonableness for Working Lunches: While working lunches are exempt, their provision must be “reasonable.” Employers should not provide lunch on a regular basis, as this could be deemed taxable.

Non-Allowable Subsistence Costs

If staff are provided with subsistence costs that fall outside of the allowable guidance, these costs must be reported to HMRC, and National Insurance contributions will be payable. Such costs are reported on each employee’s P11D, and the corresponding National Insurance liability becomes due.