If you provide entertainment to reward your employees for good work or to maintain and improve staff morale, this is considered to be for business purposes and so you can claim back the VAT.
Examples could include staff parties, team building exercises, staff outings and similar events.
However, you cannot claim back the VAT in either of these circumstances:
- When non-employees are included in the event (this is business entertainment, not employee entertainment).
- When the entertainment is provided only to directors, sole proprietors or partners of the business (where directors or partners attend staff parties together with other employees, you can claim the VAT back).
The following are not employees for VAT purposes. If any of these people are included in an event, then it is considered to be business entertainment – not employee entertainment – and you can’t claim the VAT back:
- pensioners and former employees
- job applicants and interviewees
- non-employee shareholders
Examples of business entertainment
Business entertainment expenses can include:
- payments made to third party business entertainment organisers
- food and drink
- business gifts
- free samples
- accommodation – eg hotels
- theatre and concert tickets
- sporting events and facilities
http://www.hmrc.gov.uk/vat/managing/reclaiming/entertainment.htm#7