HMRC is taking a closer look at how businesses treat the tax implications of entertaining clients and employees. Getting the rules wrong can lead to unexpected tax and National Insurance liabilities.
Business EntertainingBusiness entertaining can be tax-free for employees if it is genuinely for business purposes, such as maintaining client relationships or discussing projects. HMRC will consider who attended and whether there was a valid business reason for employee attendance.
Staff EntertainingStaff events, parties and social functions are generally taxable benefits unless an exemption applies. Many employers use a PAYE Settlement Agreement (PSA) to cover any tax due on behalf of employees.
The £150 Annual Event ExemptionStaff events can qualify as tax-free if they:
If the £150 limit is exceeded, the entire cost may become taxable.
Mixed EventsWhere both employees and clients attend an event, businesses should carefully assess whether costs relate to business entertaining or staff entertaining, as different tax rules may apply.
Record Keeping MattersEmployers should keep detailed records, including attendee lists, agendas and expense documentation, to support the tax treatment of events and respond to any HMRC enquiries.
Benefit in KindEntertaining provided to employees is a taxable benefit in kind unless an exemption applies. This includes social functions, staff events and parties. Employers often choose to include costs related to staff entertaining on a PAYE settlement agreement (PSA), settling the tax on behalf of their employees and paying employers’ Class 1B national insurance contributions (NICs) due, rather than the employees having to pay the tax themselves.
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