Staff Entertainment and Trivial Benefits

Every business knows that supporting staff is the way to improve morale and keep business running well. One way to do that is to provide staff entertainment, but you will want to understand the tax implications for you and your employees of doing so.

What is the tax position on staff entertainment?

The basic position is that staff entertainment can be set against profits and VAT can be reclaimed where applicable. However, if the business does this, the employees may have to pay tax on the entertainment provided (the employer would have to report this on a P11D form).

Look out: if there is a mix of staff and clients being entertained the whole cost must be treated as client entertainment - and entertainment of UK clients cannot be set against profits and no VAT can be reclaimed.

Trivial benefit

One way to provide a benefit to your employees that does not incur an income tax liability is to provide a trivial benefit. To qualify as a trivial benefit all of these must apply:

it costs the employer £50 or less to provide to the employee
it isn’t cash or a cash voucher
it isn’t a reward for employee work or performance
it isn’t in the terms of employee contracts

Look out: you can’t receive a trivial benefits worth more than £300 in a tax year if you’re the director of a ‘close’ company (a limited company that’s run by 5 or fewer shareholders).

Annual party exemption

A way to provide an entertainment to your employees that does not incur an income tax liability is through the annual exemption for a party or social function. To qualify for this exemption the event (online or in person) must: