Can I put a team building event through my company as a business cost?
Theoretically, there isn’t an allowance for a team party or team building event per se, although HMRC does provide limited tax relief to the cost of hosting an ‘annual event’ for your company.
You must meet and satisfy certain requirements, of course, but all of these are easily achievable by following some of the guidelines I have detailed below;
Business entertaining vs Employee entertaining
Business entertaining costs are those incurred for the purpose of entertaining people who are not employees of your business. This includes clients and customers but can also mean directors, partners and – if you’re a sole trader – you.
What counts as business entertainment?
HMRC defines business entertaining as providing ‘hospitality of any kind’ and gives examples as follows:
- food and drink
- theatre and concert tickets
- entry to sporting events and facilities
- use of business assets such as yachts and aircraft
Is business entertaining tax deductible?
No. You can’t claim either tax relief or VAT on business entertaining for anyone who is not an employee of your business.
Employee entertaining costs are those incurred for the purpose of entertaining employees of your business. This is also sometimes referred to as ‘staff entertainment’.
If you’re entertaining anyone who is not an employee, this counts as a business entertaining cost rather than employee entertainment. Remember again that if you’re a sole trader, you are not an employee of your business.
What counts as employee entertainment?
Employee entertainment costs include hospitality costs as per the above, but also commonly include – but are not limited to – food, drink, entertainment, venue hire, transport and overnight accommodation.
Is employee entertaining tax deductible?
Yes. Employee entertaining costs are usually treated as an allowable business expense and are tax deductible. VAT-registered businesses may also recover VAT incurred on allowable employee entertainment.
HMRC only allows you to do this for the cost of entertaining your current employees. An employee has to be someone who is on your business’s payroll and is being paid a salary (This also includes company directors who are being paid a salary). Former and previous employees do not qualify, nor do subcontractors and nor do shareholders who don’t work in the business/receive a salary from the business.
This can get quite complex if you host an event that’s attended by a mix of employees and non-employees. For example, if you allow your employees to bring a friend to the annual Christmas party (or any other staff parties), you’d have to work out the amount you paid on the cost of entertaining your employees and only claim for that. You can’t claim for the cost of entertaining their friends, however may be able to claim the cost related to the spouse in some circumstances.
Do employees pay tax on entertainment?
Entertaining your employees may be an allowable expense for tax relief in your business’s accounts, but it could also be a benefit on which your employees have to pay some tax.
If you’re hosting an annual event, such as a Christmas party, that’s open to all staff and costs less than £150 per guest present, then HMRC is not likely to regard it as a taxable benefit for your employees.
But if any of these three conditions aren’t met, then the whole cost of the event becomes a taxable benefit. For example, an event is likely to become a taxable benefit if any of the following is true:
- The event is a one-off meal to celebrate a new contract or good work.
- Some employees are excluded.
- The cost per head is over £150 (including VAT).
Get in contact with Direct Peak today to help you with the guidance around entertainment expenses and any further tax queries!
Looking for an accountant who can help
Direct Peak provides a dedicated business tax accountant, who will prepare your annual accounts and tax returns. They will be on hand to answer any tax queries you have.
Your business tax accountant will ensure that the company is set up in the most tax-efficient way and that you are claiming for all the correct expenses to maximise your earnings.