If you’re running a purpose-driven organisation—like a charity, not-for-profit, or green business—it’s important to know how different types of entertainment expenses are treated for tax. The table below breaks down the key differences between business entertainment (like meeting a funder) and staff entertainment (like a team dinner), so you can stay compliant and make the most of any available reliefs.
| Aspect | Business Entertainment | Staff Entertainment |
| Purpose | To discuss a project, maintain or build a mission-aligned relationship | To reward, celebrate, or engage employees or volunteers |
| Who’s Involved | Customers, potential customers, external stakeholders, funders, collaborators, or potential partners | Internal team members, including staff and volunteers |
| Tax Deductible in the business? | ❌ Not deductible for corporation tax or self-employment tax | ✅ Similar to employee salaries or other benefits, the employer gets tax relief on the cost |
| VAT Reclaimable? | ❌ Cannot reclaim VAT on business entertainment | ✅ VAT input tax is reclaimable except if the entertainment is directors or partners only. An apportionment must be made if non-staff people also attend. |
| P11D Reporting Required? | ❌ As long as staff and directors are only in attendance to facilitate the event, no benefit in kind arises. | ✅ Unless it’s an annual event open to all and under £150 per head |
| Examples | Meeting a funder over lunch to discuss a grant; hosting a partner to explore collaboration | Team dinner, volunteer appreciation event, staff gifts |
Business entertainment
Entertainment is classed as business-related when its main purpose is to talk about a specific project or build a professional relationship—like meeting a funder to discuss a grant. The cost of such entertainment counts as an expense in the providers income and expenditure account, but does not attract tax relief (it is “added back” in the tax computation) and VAT cannot be reclaimed.
But if the event is mostly social, even with some business chat, it doesn’t count as business entertainment for tax purposes. It’s treated as staff entertainment—even if clients are there. That means different tax rules apply, which are explained below.
Staff entertainment
Staff entertainment—like meals out, drinks, or gifts—is usually taxable for the employee receiving the benefit.
However, there’s a useful exemption if the event meets three conditions: it must be annual (like a Christmas party), open to all staff, and cost £150 or less per person including VAT (even if the VAT is reclaimed). If all three apply, there’s no tax, no National Insurance, and no need to report it.
But if any of those conditions aren’t met—say it’s just for directors, not held annually, or costs over £150 per head—then the whole amount becomes taxable, not just the excess. In those cases, it must be reported on a P11D.
Businesses can reclaim VAT on staff entertainment expenses only when the event is exclusively for employees and serves a clear business purpose, such as boosting morale or team cohesion. Examples include staff parties and team-building events. However, VAT cannot be reclaimed if the entertainment includes non-employees (like clients or spouses), or is solely for directors or partners. In such cases, VAT must be apportioned, and only the employee-related portion is recoverable. Detailed records and valid VAT invoices are essential, and businesses should ensure events are inclusive and not overly lavish to avoid scrutiny from HMRC.
Trivial benefits
The trivial benefits exemption offers green businesses, social enterprises, and charities a tax-efficient way to reward staff with small, non-cash gifts. To qualify, each benefit must cost £50 or less (including VAT), not be cash or a cash voucher, not be a reward for work or performance, and not be part of a contractual entitlement or salary sacrifice scheme. These gifts—such as a bouquet of flowers, a bottle of wine, or theatre tickets—can be given without triggering Income Tax, National Insurance, or the need to report them on a P11D form.
For directors of close companies (typically those with five or fewer shareholders), there is an annual cap of £300, though the £50-per-gift rule still applies. Importantly, employees can receive unlimited trivial benefits as long as each one meets the criteria. This exemption is particularly useful for mission-driven organisations seeking to maintain morale and show appreciation without increasing administrative or financial burdens
