Treating your team to a night out or saying thank you to a subcontractor can feel like a well-earned reward after a busy period. But when it comes to putting it through the books, HMRC doesn’t always share the same sense of celebration!
Here’s what counts (and what doesn’t) when entertaining staff, subcontractors – and even your spouse – as a sole trader or a limited company.
What counts as “Entertainment”?
HMRC splits business entertainment into three main categories:
- Staff entertainment – events or meals for employees, such as a staff Christmas party.
- Client or subcontractor entertainment – hospitality for people who aren’t employees.
- Gifts – small, tangible items given to clients, staff or suppliers.
Each type has its own tax and VAT treatment, and it’s easy to blur the lines between what’s deductible and what’s not.
Limited Companies
Staff Entertainment
If your limited company has employees (including directors on payroll), you can claim staff entertainment as a valid business expense provided it’s for employees only.
The key benefit:
You can claim up to £150 per person per year (including VAT) under the Annual Event Exemption, as long as:
- The event is open to all employees.
- It’s an annual occasion (e.g. Christmas party, summer BBQ).
- The total cost per head doesn’t exceed £150 (if it’s £151, none of it is tax-free).
This applies even if your “staff” is just you and your partner, as long as they’re genuinely employed by the company.
https://www.gov.uk/expenses-benefits-social-functions-parties/whats-exempt
What about spouses?
If your spouse or partner works for the company (for example, they’re on payroll or have an active role), they count as an employee and have their own £150 per-head exemption for annual events.
If they don’t work for the company, they can still attend as a guest — but they don’t get their own £150 allowance. Instead, the total cost of the event is divided by everyone who attends (employees and guests) to find the cost per head.
As long as that per-head figure is £150 or less (including VAT, travel, and accommodation) and the event is annual and open to all employees, it’s exempt from tax.
If the cost per head exceeds £150, then the full amount becomes taxable as a benefit for the employee (not just the excess).
Example: Employee Tim brings his partner, Sarah, to the company Christmas party. The total event cost (including VAT) is £9,600, and there are 80 attendees (50 employees and 30 guests). That’s £120 per head, so it’s fully exempt.
If the total cost were £13,600, the per-head cost would rise to £170, and the whole £170 per employee would become taxable, covering both the employee and their guest.
Subcontractors
Subcontractors aren’t employees — so entertaining them counts as business entertainment, not staff entertainment.
That means:
- Corporation tax relief: ❌ Not allowed.
- VAT reclaim: ❌ Not allowed.
You can still treat them to lunch or an event, but you’ll have to cover it personally (or record it as a disallowed expense).
Gifts
You can give small gifts to your employees — but not to clients or subcontractors — and still claim them as a business expense, provided they meet HMRC’s trivial benefit rules.
To qualify, the gift must:
- Cost £50 or less (including VAT) per employee.
- Not be cash or a cash voucher.
- Not be a reward for performance or work done.
- Be provided on an occasional basis (for example, a birthday, Christmas, or to say “thank you”).
Examples of allowable staff gifts include a box of chocolates, flowers, or a bottle of wine under £50, or a small branded item such as a company mug or notebook.
If you give gifts to directors of a close company (most small limited companies fall into this category), the same £50 per gift rule applies, but the total can’t exceed £300 per tax year per director.
However, it’s important to note that subcontractors and clients do not qualify for this exemption.
- Gifts or hospitality for subcontractors are treated as business entertainment and are not tax-deductible.
- Promotional gifts (like branded pens or mugs given to many people) can still be claimed as advertising, but these must carry a clear business logo and not be food, drink, or vouchers.
https://www.gov.uk/expenses-and-benefits-trivial-benefits
Sole Traders
Staff Entertainment
If you employ staff, you can use the same £150 per head rule.
However, if you’re a one-person sole trader, HMRC sees staff entertainment as personal. So you can’t claim meals, nights out, or gifts for yourself — even if you are the business!
Subcontractors
As with limited companies, entertaining subcontractors is not allowable for tax. It’s classed as business entertainment and should be recorded as a disallowed expense.
Spouses
If your spouse works in the business, they count as staff — so you can include them in staff entertainment and claim appropriately.
If they don’t work in the business, you can’t claim their portion. HMRC would view their meal or ticket as a personal cost.
Example: You and your spouse run your small business together as a sole trader. You host a summer BBQ for you, your spouse, and one part-time employee, costing £420 in total (£140 per head).
If your spouse is employed by the business (on PAYE), their share and the employee’s share can be claimed — but your own portion (as the sole trader) is not allowable, because you’re not classed as an employee.
If your spouse doesn’t work in the business, then both your share and your spouse’s share are disallowed, leaving only the employee’s £140 as an allowable expense.
Gifts
Promotional gifts can be claimed if:
- They’re advertising your business (e.g. branded pens, mugs).
- Each item costs less than £50.
- You give them to multiple people (not just one).
Unbranded gifts, alcohol, or food gifts to clients are not allowable.
| Type of Expense | Sole Trader | Limited Company | Notes |
| Staff party (Annual Event, £150 rule) | ✅ Only for PAYE staff ❌Not for the sole trader or family | ✅ For employees (including directors) | Must be an annual event open to all staff. £150 per head limit (includes VAT, travel, and accommodation). |
| Subcontractor meal/entertainment | ❌ | ❌ | Treated as business entertainment – not tax deductible, no VAT reclaim. |
| Spouse (employed) | ✅ Counts as staff if on payroll | ✅ Counts as staff if on payroll | If not employed, can attend as a guest, but the cost counts toward the per-head limit. |
| Spouse (not employed) | ❌ Not allowable | ⚠️ Guest only – included in per-head cost for exemption test | If the cost per head > £150, the full amount becomes taxable for the employee. |
| Branded promotional gift (e.g. mugs, pens) | ✅ If genuinely advertising the business | ✅ If genuinely advertising the business | Must be under £50, carry a clear logo, and not food, drink, or vouchers. |
| Staff gift (trivial benefit) | ✅ For PAYE staff only | ✅ For employees and directors | Must cost ≤ £50, not cash or a reward for work. Directors capped at £300 per tax year. |
| Gift to subcontractor or client | ❌ | ❌ | Not allowable – treated as business entertainment. |
Final thoughts
Being generous is great for morale and relationships — but HMRC won’t let you expense everything that feels “business-related.”
The golden rule:
👉 If it’s for genuine staff (including working spouses), and within the limits — claim it.
👉 If it’s for clients, subcontractors, or yourself personally — keep it off the books.
A little planning (and a quick chat with your accountant) can save a lot of confusion later — and make sure your celebrations stay both fun and tax-efficient.
Need a hand sorting it out?
The rules around entertainment and gifts can be tricky — and what’s allowable for one business might not be for another. If you’re unsure what you can claim (or want to double-check your records before year-end), our team at DNA Accountants is here to help.
We’ll make sure your celebrations stay tax-efficient, your books stay compliant, and your HMRC returns stay stress-free.
Want to understand exactly what counts as an allowable business expense?
👉 Check out our full guide to allowable expenses here.
Or, if you’d prefer tailored advice…
for clear, friendly guidance that makes business finance simple.