Common expenses and benefits: tax, NICs and reporting requirements

In this section:

A-Z list of expenses and benefits: short guidance
Company cars, vans and fuel
Mileage expenses for business travel in employees’ own vehicles
Travel expenses and benefits
Entertainment expenses and benefits
Childcare
Medical insurance and treatment
Loans (including season ticket loans)
Relocation expenses and benefits

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Entertainment expenses and benefits

Entertainment expenses and benefits

This guide sets out the tax and National Insurance contributions (NICs) requirements you’ll have to comply with if you provide, pay for, or reimburse the costs of entertainment for your employees or company directors.

The guide explains the different rules that apply to employee/director entertainment and to client entertainment paid for by your employees or directors. It also tells you which entertainment expenses can be covered by a dispensation so that you don’t have to report them or pay anything to us.

On this page:

What counts as an entertainment expense or benefit?
Keep things simple by using a dispensation
Work out the value to report
Where to report and what tax/NICs to pay

What counts as an entertainment expense or benefit?

If you provide food, drink, gifts or other hospitality to your employees or company directors – or if you pay or reimburse their entertainment-related costs – you’ll need to report it to us and you may need to work out and pay us Class 1 or Class 1A NICs.

The specific steps you need to take are set out in the later section ‘Where to report and what tax/NICs to pay’. The requirements differ depending on:

whether the expense relates to your employees and directors only or to clients as well
the way in which you meet the costs incurred

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Keep things simple by using a dispensation

You can arrange a dispensation with us to cover the following categories of entertainment expenses and benefits:

business-related entertainment that you arrange and pay for
business-related entertainment arranged by an employee or director, but which you pay for or reimburse (up to the actual cost of the entertainment)

Items covered by a dispensation do not need to be reported to us and you won’t have to pay any tax or NICs on them. For more information about how to set up a dispensation, see our separate guide on the topic – use the link below.

More about reducing expenses and benefits admin with a dispensation

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Work out the value to report

The value to report is the cost to you of providing, paying for, or reimbursing the entertainment.

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Where to report and what tax/NICs to pay

The forms you’ll need to use and the tax or NICs you may need to pay are outlined below.

The quickest way to complete the forms mentioned below is to use our free ‘Online Return and Forms’ service, the interactive forms on our Employer CD-Rom, or a commercial payroll software package.

You provide a Christmas party or other annual social functions for your employees/directors

There is nothing to report to us and you don’t have to pay us any tax or NICs if both of the following two conditions are met:

the events are available to all your employees and directors
the total cost of the events for the tax year is no more than £150 per person

However, if either of these two conditions isn’t met, then you must report the cost of the function at the end of the tax year on form P11D for company directors and for employees earning at a rate of £8,500 or more per year.

You will also have to pay us Class 1A NICs on the cost of the functions for these employees. However, there are no NICs to pay and nothing to report to us for employees earning at a rate of less than £8,500 a year.

You arrange other entertainment for your employees/directors (or for both employees/directors and clients) and pay the provider directly

At the end of the tax year, you must pay us Class 1A NICs on the cost of the entertainment to the extent that it is provided to company directors or to employees earning at a rate of £8,500 or more per year. You must also record the value in section K, L or M of form P11D – the proportion to report for each individual is usually calculated on a per capita basis.

Note that there is an additional entertainment-related box in section N of form P11D. This is relevant to you if all the following apply:

you carry on a trade
the entertainment provided was primarily for your customers or clients
any entertainment provided to employees/directors was merely incidental

Put a tick in the box if the cost of the entertainment will be disallowed in your business tax calculation. Put a cross in the box if it won’t be disallowed. There is no need to enter anything in the box if your business is a tonnage tax company or a charity.

There is no need to pay any NICs or report the entertainment for employees earning at a rate of less than £8,500 per year.

The employee arranges entertainment but you pay for it or reimburse the employee

If the entertainment is genuinely business-related, no NICs or PAYE (Pay As You Earn) tax are due. But you must record the value on form P11D for company directors and for employees earning at a rate of £8,500 or more per year. You may also have to enter a tick or cross in the box in section N of form P11D as explained in the previous subsection.

Where the entertainment isn’t business-related, the steps to take depend on whether you pay for the entertainment directly or reimburse your employees/directors:

If you reimburse the cost of the entertainment, you should add the cost to the other earnings of the employee or director for the earnings period when working out both Class 1 NICs and PAYE tax
If you pay the supplier of the entertainment directly, then PAYE tax isn’t due on the cost but you should add it to the employee’s or director’s other earnings when working out Class 1 NICs for the earnings period. You should also record the cost on form P11D for directors and for employees earning at a rate of £8,500 or more per year, or on form P9D for employees earning less than that.