The cost incurred on holding staff parties/social events can be provided as a tax-free benefit, providing certain requirements are met.
The events must be open to all staff to attend and there is an annual limit of £150 per head (including VAT)per attendee that can be treated as a tax-free amount. If the total cost per person for all functions during any tax year exceeds £150, the exemption can be claimed against one or more functions for which the total cost does not exceed £150. The exemption cannot be deducted against the cost of any event wher the amount per head has exceeded that annual limit. Expenditure for any event not covered by the exemption would be a benefit in kind and need to be reported on the end of year form P11D accordingly.
Expenditure for staff entertaining is allowable as a deduction in your accounts on the basis that it is incurred for the benefit of your employees. For VAT, input tax an be recovered on the proportion of entertaining expenses relating to employees only and not on any such expenditure relating to other guests.