Summer staff events: What UK companies can claim for tax

Summer is a great time to bring your team together. Whether it is a BBQ, team lunch, away day, garden party or activity afternoon,  well-planned summer staff events can boost morale and give everyone a chance to step away from the day-to-day routines.

But before you book the venue or order the drinks, it is worth asking a practical question: what can your company claim for tax?

The good news is that UK companies can often claim staff entertaining costs, and some events may be tax free for employees if they meet HMRC’s annual function rules. The key is understanding the summer staff events tax rules before the money is spent.

In this guide, Agile Accountants explain what UK limited companies can claim, how the £150 per head exemption works, what happens if you go over the limit and the common mistakes to avoid.

Are summer staff events tax deductible?

In many cases, yes. Staff entertaining is generally allowable for Corporation Tax where it is provided for employees. HMRC’s Business Income Manual confirms that staff entertaining is one of the exceptions to the usual rule that business entertaining is not allowable.

This means a summer staff event may be deductible for the company if it is genuinely for employees.

Examples might include:

• A summer BBQ for staff
• A team lunch
• A company away day
• An annual summer party
• A social event after a team meeting
• An activity day for employees

However, tax deductibility for the company is only one part of the picture. You also need to think about whether the event creates a taxable benefit for employees.

That is where the summer staff events tax rules become especially important.

What is the £150 annual function exemption?

HMRC provides an exemption for annual parties and similar social functions if certain conditions are met. This is often called the £150 annual function exemption.

For the exemption to apply, the event must usually be:

• An annual event
• Open to all employees, or all employees at a particular location
• No more than £150 per head, including VAT
• Not just for directors, unless all employees are directors or the company structure supports that position

The gov.uk website explains that reporting and tax treatment depend on whether the event is annual, open to all employees, costs more than £150 per head and how many events are provided during the tax year.

The important point is that this is an exemption, not an allowance. If an event qualifies and costs £150 per head or less, the benefit can be tax free for employees. If it does not qualify, the cost may need to be reported to HMRC.

How to calculate the £150 per head limit

The £150 per head limit includes the full cost of the event.

This can include:

• Food
• Drinks
• Venue hire
• Entertainment
• VAT
• Transport provided for the event
• Overnight accommodation provided for the event

HMRC guidance confirms that the cost of the function includes VAT, transport and overnight accommodation if these are provided to allow employees to attend.

To calculate the cost per head, divide the total event cost by the total number of people attending. That means you must include all attendees, not only employees. If partners or external guests are invited, they are included in the overall headcount.

Example of a summer staff event under £150 per head

A company holds a summer party for employees and their partners.

The total cost is £3,000 including VAT. There are 30 people attending.

The cost per head is:

• £3,000 divided by 30 attendees
• £100 per head

If the event is annual and open to all employees, it should fall within the £150 exemption. This means there should usually be no taxable benefit for employees.

Example of a summer staff event over £150 per head

A company holds a summer event costing £4,800 including VAT. There are 30 people attending.

The cost per head is:

• £4,800 divided by 30 attendees
• £160 per head

Because the cost is over £150 per head, the exemption does not apply to that event. The full benefit may become taxable, not just the £10 excess. HMRC guidance states that where functions fall outside the exemption, the full cost per head can be chargeable.

Can you have more than one staff event each year?

Yes. The exemption can apply to more than one annual event in a tax year, as long as the combined cost of the qualifying events does not exceed £150 per head.

For example, a company might hold:

• A summer BBQ costing £60 per head
• A Christmas party costing £85 per head

The total is £145 per head, so both events may fall within the exemption if they meet the other conditions. If the total cost goes over £150 per head, you can choose which events best use the exemption. HMRC’s Employment Income Manual explains that if the total cost per head of multiple functions exceeds £150, the events that best use the £150 can be exempt, while the others are taxable.

This is helpful for companies that run both summer and Christmas events.

What happens if the event is not exempt?

If a staff event does not qualify for the exemption, the company may need to report the benefit to HMRC.

This may happen if:

• The event costs more than £150 per head
• It is not an annual event
• It is not open to all employees
• It is only available to selected staff
• It is mainly for directors or shareholders
• The records are not clear enough to support the claim

The gov.uk website states that if events are not exempt, employers must report the costs to HMRC and pay National Insurance where required.

In practice, this may be dealt with through:

• P11D reporting for employees
• A PAYE Settlement Agreement (often called a PSA)
• Employer Class 1A or Class 1B National Insurance, depending on the method used

A PSA can be useful where an employer wants to pay the tax on behalf of employees, rather than creating an unexpected taxable benefit for the team.

What about events for directors only?

This is an area where owner managed businesses need to be careful.

If your company has several employees and only the directors attend the summer event, it is unlikely to qualify for the all employee annual function exemption.

However, if the company only has directors and no other employees, the position may be different. The event must still be genuinely annual, properly documented and within the £150 per head limit.

For small companies, it is especially important to keep records showing:

• Who attended
• The purpose of the event
• The total cost
• The cost per head
• Whether the event was open to all employees
• Whether guests were included

The more informal the business, the more important the paperwork becomes.

Can you claim VAT on summer staff events?

VAT can sometimes be recoverable on staff entertaining, but the rules are more restrictive where non employees attend.

If the event is only for employees, VAT recovery may be possible, subject to normal VAT rules.

If guests, spouses, clients or suppliers attend, the VAT position can become more complicated. The business may need to restrict the VAT claim for the non employee element.

This is a common issue with summer parties where partners are invited. The event may still be valuable for morale, but the VAT treatment should be reviewed before the return is submitted.

Staff events vs client entertainment

Staff entertaining and client entertaining are treated differently.

Staff entertaining is often allowable for Corporation Tax if it is for employees. Client entertaining is generally not allowable for tax, even if there is a genuine business purpose. HMRC’s Business Income Manual explains that business entertainment is generally disallowed, with specific exceptions such as employee entertainment.

This matters if your summer event includes a mix of:

• Employees
• Directors
• Clients
• Suppliers
• Prospects
• Family members
• Friends of the business

Where non employees attend, the company may need to split the costs between staff entertaining and business entertaining.

Common summer staff events tax mistakes

The most common mistakes are easy to avoid with a little planning.

Watch out for:

• Assuming the £150 limit is an allowance rather than an exemption
• Forgetting that VAT is included in the £150 per head calculation
• Going slightly over £150 and making the full amount taxable
• Holding an event only for directors when the company has other staff
• Not counting guests in the cost per head calculation
• Mixing staff entertaining and client entertaining
• Forgetting about PAYE, P11D or PSA reporting
• Keeping poor records of attendees and costs
• Running multiple events without tracking the total per head

A little structure before the event can prevent unnecessary tax admin later on.

How to plan a tax efficient summer staff event

A tax efficient summer staff event does not need to be complicated. It just needs to be planned properly.

Before booking, ask:

• Is the event annual?
• Is it open to all employees?
• What is the total expected cost including VAT?
• Will partners or guests attend?
• What is the estimated cost per head?
• Have we already used part of the £150 exemption this tax year?
• Are any clients or suppliers invited?
• How will the event be recorded in the accounts?

If the event is likely to exceed £150 per head, decide in advance whether the company will report the benefit through P11D or use a PAYE Settlement Agreement.

How Agile Accountants can help

At Agile Accountants, we support limited companies across the UK with practical, year-round accounting and tax advice. Our role is not just to help with compliance, but to make sure founders and business owners understand the financial impact of the decisions they make throughout the year.

From staff events and employee benefits to VAT, payroll, Corporation Tax and director planning, we help you stay organised, tax efficient and confident in your numbers.

We can help you:

• Understand what your company can and cannot claim
• Keep accurate records for HMRC
• Review costs before they become tax issues
• Build simple finance processes that support growth
• Manage payroll, benefits and company reporting
• Make confident decisions with clear advice

For busy founders, the aim is simple: keep the business compliant, avoid unnecessary tax problems and make sure your finance function supports your wider goals.

Final answer: What can UK companies claim for summer staff events?

UK companies can often claim summer staff event costs for Corporation Tax when the event is genuinely for employees. If the event is annual, open to all employees and costs no more than £150 per head including VAT, it may also be tax free for employees under HMRC’s annual function exemption.

If the event goes over £150 per head, is not open to all employees, or includes clients and other non employees, the tax position can change quickly.

The best approach is to plan the event with the summer staff events tax rules in mind from the start.

At Agile Accountants, we help owner managed businesses and fast growth start ups structure staff events, benefits and reward packages in a way that is practical, compliant and tax efficient. Contact us today if you would like help reviewing your company’s staff entertaining costs.