Company Retreats

It is now quite common for a company to have an annual retreat where the staff are whisked away to an exciting location for a mixture of events such as team building, workshops and leisure activities.

HMRC's guidance does not address this particular matter and some aspects fall within a grey area of tax, so some judgement is required and each case will need to be analysed on its own merits to identify the correct tax treatment.

The main risk here is that HMRC deems the event to be non-tax deductible for the company and/or a taxable benefit for the employee, i.e. the employees will need to pay tax on the value of the benefit they received. Both of these could be significant if, for example, the trip was to somewhere exotic (and expensive) like Bali!

Tax position for the company

The main test to satisfy here is whether the retreat was wholly and exclusively for the purpose of business. If so, the cost of the trip can be counted as a deductible cost for the company, for tax purposes.

Generally speaking, this means that the reason for the retreat was for the purposes of the growing, developing or expanding the trade. If the trip was purely for leisure, with no work related or team building activities, then it's unlikely the event will be allowable as a tax deductible cost.

Some types of expenditure might have a dual purpose (i.e. a mix of business and pleasure) - usually this would make the entire cost non tax-deductible, however if the business element can be specifically identified then you may be able to deduct this element from your profits.

As an example, a digital agency plans a team building trip to Wales costing £5k in total. The trip consists of £3k spent on structured team building activities and workshops in a hotel, and £2k for a go karting event. Because the go karting is separately identifiable as being non-business, this element of the cost is a disallowable cost for the company.

As another example, a tech company arranges a trip to LA for all of its staff to attend a software developer conference. A few team members also plan to take a few days of annual leave to do some sightseeing whilst they are there.

• The trip had a dual purpose for some employees (conference + sightseeing) - therefore their travel costs are not tax deductible for the company. There is a good example of this here.
• For those that only planned to attend the conference and did not intend to undertake any sightseeing, the entire cost of the trip would be tax deductible for the company, see here.

Tax position for the employees

Some elements of a company retreat may be considered to be a taxable benefit for the employee, so it is important to understand each element and how it might affect your employees.

Work related training

Expenditure on "work related training" and "related costs" is exempt from being taxed on the employee.

HMRC defines work related training as any training course or other activity which is designed to impart, instil, improve or reinforce any knowledge, skills, or personal qualities which:

1. are, or are likely to prove, useful to the employee when performing his/her duties or
2. will qualify or better qualify the employee to undertake the employment, or to participate in charitable or voluntary activities arising through the employment.

HMRC also specify what would not be covered by this exemption:

• facilities or benefits for entertainment or recreation which are not in any way connected with acquiring knowledge, skills, or personal qualities needed for their role
• rewarding the employee for performing the duties of their employment
• providing an employment inducement which is not connected with acquiring knowledge, skills, or personal qualities which satisfy the definitions of work-related training.

They provide some examples, as follows:

• "Safe-driver training, taken up by those with a company car, would qualify whereas an evening at the go-kart track would not."
• "A genuine residential work-related training course is held in a hotel and the attendees remain at the hotel for a golfing weekend paid for by their employer. The costs of travel to and from the hotel and the costs incurred during the course are not taxable but the cost of the golfing weekend is clearly taxable as it is a reward."

Team Building activities

There is no specific guidance from HMRC in this area, and therefore some judgement is required. The work related training definition from HMRC does state the following:

"There is no restriction on the way the training can be delivered....Where leadership and team skills are appropriate to the employee, participation in activities such as Outward Bound, Raleigh International, or Prince’s Trust will qualify...."

So, it appears that structured team building activities and associated leisure activities, typically those run by professionals, may qualify, whereas more recreational and freeform activities that can't easily linked to gaining skills or knowledge (for example, the go-karting example stated above) would not qualify as tax free for the employees.

Dinner and drinks

The rules for dinner and drinks follow the same rules as staff entertainment, see here.

In addition to the normal rules, HMRC states here that:

"...normal meals, refreshments and leisure activities offered within a training course are not taxable"

Travel costs to and from the retreat

Provided the main purpose of the retreat is a work related training event, then HMRC's guidance states that travel and subsistence to and from the event are exempt from tax for the employee. This is on the basis that the employee had undertaken the training in the performance of the duties of his/her office or employment 

Interestingly, companies can also cover the additional child care costs made necessary by the training course, but not the routine everyday costs of travel or child care.

These costs can either be paid directly by the company, or as a reimbursement to the employee.

Other costs incidental to the trip

There may be some ancillary costs involved and these generally should be looked at on a case by case basis. Some costs will be incidental to the trip, and HMRC's guidance states the following:

"Expenditure incurred by an employer for a mixed purpose, intended in part to reward and in part for genuine training, will need to be apportioned. But apportionment is not necessary just because an element of genuine training is enjoyable or recreational. For example, the use of a hotel’s swimming pool and leisure facilities during a residential course will not require apportionment."

TLDR - company retreats will likely contain a mixture of allowable and disallowable company costs, some of which might also be taxable on your employees. There is no 'one size fits all' when it comes to these types of events, as the rules are fairly nuanced and HMRC's guidance has not caught up with how companies now operate. To ensure you're fully aware of the tax implications, contact us in advance to discuss the trip in detail.