Staff refreshments & working lunches

Conditions

• A sole trader cannot claim food and drink for themselves under any 'staff refreshments' heading. There is no employee-employer relationship: the dual-purpose rule in BIM37670 applies, and a sole trader's own food is personal sustenance regardless of when it is eaten. Where a sole trader employs staff and provides them with reasonable refreshments during a working session, those costs are an allowable staff expense — but the trader's own share is not.
• For a limited company, the entertainment disallowance (s45 ITTOIA 2005 / s1298 CTA 2009) applies to hospitality provided to clients and customers — but staff entertaining is explicitly not treated as business entertainment unless it is incidental to entertaining others (BIM45025). Reasonable working lunches, tea, coffee, and refreshments provided to employees during meetings and training days are therefore generally allowable deductions as staff or overhead costs.
• Whether those same refreshments create a taxable benefit in kind for the employee depends on the nature and scale of the provision. Modest refreshments during a genuine working meeting are not normally treated as a taxable benefit — HMRC does not expect employers to put a value on a biscuit. Larger social events are treated differently.
• The annual staff function exemption under s264 ITEPA 2003 applies to social events — Christmas parties, summer barbecues, and similar — that are open to all staff (or all at a particular location) and recur annually. The exemption is £150 per head per year in aggregate, including VAT and any associated transport or accommodation. This is a threshold, not an allowance: if the per-head cost of qualifying events across the year exceeds £150, the entire per-head cost of the function(s) that take it over the limit becomes taxable income for the employees — not just the excess.
• The £150 aggregate applies across all qualifying functions in the year. An employer can designate which events are covered, but the total cost per head across designated events cannot exceed £150.
• One-off celebrations — an anniversary party, a leaving do, an ad hoc team dinner — do not qualify for the annual function exemption. They may still be allowable for the company (as a staff cost, not entertainment), but the employee faces a potential benefit-in-kind charge.
• Virtual functions that are otherwise qualifying meet the exemption conditions.

Common mistakes

• A sole trader treating their own working lunch as 'staff refreshments' when there are no employees — the dual-purpose rule disallows the trader's own food regardless of labelling.
• A company holding a staff Christmas party at £160 per head and assuming the £150 exemption covers most of it — the entire £160 per head becomes a taxable benefit for employees, not just the £10 excess.
• Treating every team lunch as covered by the annual function exemption — the exemption is specifically for annual recurring social functions open to all staff, not for routine working meals.
• Forgetting that the £150 limit is cumulative across all qualifying events in the year. Two events at £80 and £90 per head in the same year aggregate to £170 — exceeding the limit.

What to keep

• For working lunches and refreshments: receipts and a note of the meeting, attendees, and business purpose.
• For annual functions: total cost, headcount, per-head calculation, evidence the event was open to all staff, and the date. Retain records showing the aggregate per-head cost across all qualifying events in the year.

Real-world example

A limited company of eight employees holds weekly team meetings with sandwiches and drinks (about £7 per head, paid by the company). These are working meals during productive meetings — allowable for the company and not a taxable benefit. In December the company holds a Christmas dinner costing £120 per head. This is within the £150 annual function limit, so no income tax or National Insurance arises for the employees. If the company had also held a summer barbecue at £40 per head, the aggregate for the year would be £160 — over the limit, making both events potentially taxable.

Frequently asked

Related allowances