If you’ve ever organised a staff party, team-building day, or end-of-year celebration, you might have asked yourself: can you reclaim VAT on staff entertainment? 

The short answer is yes, but there are rules. HMRC has specific guidance, and understanding it can save your business money and prevent unnecessary headaches.

This guide explains VAT on staff entertainment, including what counts as staff entertainment, when VAT can be reclaimed, real-world examples, and practical tips to make claiming straightforward.

Understanding VAT on entertainment for staff

VAT is a tax added to most goods and services in the UK. Businesses can usually reclaim VAT on expenses used for business purposes. When it comes to staff events, the rules are slightly different because HMRC wants to ensure the activity genuinely benefits the business and is not purely a perk for employees.

Staff entertainment includes events, activities, or treats organised for employees to improve morale, reward performance, or foster teamwork. Following HMRC guidance makes it simple to reclaim staff entertainment costs legally.

What is staff entertainment?

Staff entertainment is any event or activity provided by your business for your employees. 

Common examples include:

• Christmas parties.
• Team-building events.
• Staff dinners or outings.
• End-of-year celebrations.

The key point is that the event is primarily for employees. If you include clients, suppliers, or other non-employees, reclaiming VAT for employee events becomes more complicated. In some cases, you can only reclaim the portion of VAT that relates to employees.

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When can you reclaim VAT on staff entertainment?

HMRC allows businesses to reclaim VAT on staff events if it is for business purposes. Essentially, the activity should improve employee morale, motivation, or productivity. 

There are several important factors to keep in mind:

Only for employees

VAT can be reclaimed if the event is solely for employees. If clients, suppliers, or other non-employees attend, only the portion relating to employees can be reclaimed. Keeping costs separate is essential to ensure your claim is accurate and compliant with HMRC rules.

Keep it reasonable

The event should be of a reasonable scale. Lavish or extravagant parties might be questioned by HMRC. The expectation is that the cost and size of the activity is appropriate for your business. A simple office Christmas party or a small team outing will usually qualify, while a five-star weekend away for a large group may need careful consideration.

You should document everything

Good record keeping makes reclaiming staff entertainment VAT much easier. HMRC expects clear evidence that the event is for employees. 

Things to keep:

• Invitations or emails
• Attendance lists
• Receipts and invoices
• Notes describing the purpose of the event

Proper documentation means that if HMRC ever asks for evidence, your claim can be supported easily.

Directors and partners

For Limited Companies, VAT on staff entertainment provided only for directors or business partners cannot be reclaimed. 

However, if directors or partners attend an event with employees, VAT can be reclaimed on the part that relates to staff. This distinction is important for company directors when planning events.
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Eight practical examples of VAT on staff entertainment

Here are several scenarios showing how reclaiming VAT for employee events works in practice:

1. Staff Christmas party

A small company organises a Christmas party with food, drinks, and entertainment for employees only. Because it is for employees and modest in scale, the VAT on catering, venue hire, and other costs can usually be reclaimed.

2. Team-building weekend

A business hosts a weekend retreat for team-building exercises. If the main purpose is to benefit the business by improving teamwork and employee performance, VAT on accommodation, meals, and activities can usually be reclaimed. 

If a weekend trip is mainly for leisure and has little to do with business, you usually can’t reclaim the VAT.

3. Event with non-employees

A company holds a networking dinner with both staff and clients. In this case, only the VAT relating to the employees’ costs can usually be reclaimed. Costs associated with entertaining clients or suppliers are not reclaimable. Separating invoices or costs makes this clear, and makes supporting any VAT claim easier. 

4. Staff training lunch

A business runs a lunchtime training session for employees. Food and drink provided during the session count as staff entertainment, so VAT for employee meals can usually be reclaimed. 

Not all staff events need to be parties; small gestures related to employee development also qualify.

5. Office milestone celebration

Suppose your business celebrates an office anniversary or a team hitting a major target with a small gathering and refreshments. As long as it is for employees and of reasonable scale, VAT on staff event costs can often be reclaimed. However, it’s always advisable to speak to a professional like Crunch about which staff events you can reclaim VAT on. 

6. Small team lunch

Your business takes a small team out for lunch to discuss a new project. If the purpose is primarily work-related, the tax on employee celebrations can normally be reclaimed. This is a common, low-cost way to reward staff without breaching HMRC rules.

7. Employee wellness event

A company organises a wellness day for employees, including yoga, healthy meals, and relaxation sessions. Because it is designed to benefit employee wellbeing and productivity, VAT on associated costs can usually be reclaimed.

8. Celebrating project completion

After completing a major client project, the company treats employees to drinks and snacks in the office. Even small in-office celebrations count as staff entertainment, so in most cases, VAT for staff events like this can be reclaimed.

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Tips for reclaiming VAT on staff events

Here are some steps to make claiming staff entertainment VAT easier:

1. Plan ahead

Before booking, consider the VAT implications and ensure it qualifies for a claim.

2. Keep records

Save receipts, invoices, emails, and notes explaining the purpose of the event.

3. Separate costs

If the event includes non-employees, clearly separate costs to avoid mistakes.

4. Be reasonable

Keep events modest in scale to ensure HMRC considers them business-related.

5. Check HMRC guidance‍

VAT Notice 700/65 covers business entertainment in detail.

6. Seek advice

When in doubt, speak to a qualified accountant to avoid errors and maximise reclaim.

Common mistakes to avoid

Many businesses make small mistakes when claiming VAT on staff events. Watch for:

• Claiming VAT on events primarily for directors or partners with no employees present.
• Including clients or suppliers without separating costs for employees.
• Failing to keep proper documentation.
• Overstating the scale or purpose of the event. 

Avoiding these mistakes saves time and reduces the risk of HMRC challenging your claim.

What this means for your business

You can reclaim VAT on staff events if HMRC rules are followed carefully. Reclaiming this VAT is more than just ticking a compliance box. It helps your business save money, stay organised, and reward employees in a way that is both fair and sustainable.

For more guidance, HMRC’s official advice on VAT on staff entertainment is available at Business entertainment VAT Notice 700/65.

For more detailed guidance on tax exemptions for company parties, including the £150 annual per head limit and eligibility criteria, check out our guide ‘Claiming Tax Exemptions For Company Summer Parties’.

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