The Complexities of Entertainment Allowance Taxation
Business entertainment remains a positive and vital part of any corporate relationship despite the scrutiny it can attract and a shift in corporate culture away from such activity.
The HMRC’s rules and regulations around benefits and expenses associated with running a business are comprehensive and complex.
Its benefits and expenses A-Z starts at accommodation and ends with works bus services, having covered such items as offshore transfers in the oil and gas industry and school fees.
Are Business Entertainment Expenses Tax Deductible?
Entertainment is there on the list too. Business entertainment covers eating, drinking and other hospitality such as hotel accommodation, theatre and concert tickets and sporting events.
Those being entertained free of charge “may be a customer, a potential customer or any other person” with whom the intention is to discuss a particular business project or to form or maintain a business connection.
Employee entertaining is a separate matter with differing regulations.
HMRC considers business entertainment expenses and expenditure on gifts as not allowable as a deduction against profits, even if it is a “genuine expense”. This means tax relief is unavailable.
The same goes for VAT too. You cannot claim VAT on any activity that falls in the business entertainment category.
What Entertainment Expenses are Deductible?
Unlike business entertainment, staff entertaining is regarded as allowable, and business spending is accordingly tax deductible.
Acceptable expenses will include food, drink, venue hire, transport and accommodation. VAT is also recoverable, but you have to be VAT-registered in order to benefit.
Claiming for Christmas Parties
A significant employee entertainment event happens around this time of year when the annual Christmas party takes centre stage.
It can be an important time as businesses want to recognise their own achievements, boost morale and say thank-you to staff.
Unlike business entertainment, the cost of entertaining employees and directors at Christmas can be claimed as a business expense as long as the cost per head is less than £150.
Similarly, a staff summer party for example can also be claimed. However, the £150 limit is a total amount per year and not applicable for each event.
To Entertain or Not to Entertain
Ultimately company policy for business entertainment expenses for clients and customers should be clear so as not to be implemented in a haphazard way.
Such a policy will also ensure corporate reputations are managed and not seen as excessive at a time when the economy is under pressure and the cost of living has risen.
Employee entertainment, such as the annual event, is also a policy decision for business bosses but there is no doubt it can be beneficial.
Contact Sherlock Accounts Today
The tax regulations regarding business and employee entertainment are complicated.
And, as always, with such complications, if you have any doubts or concerns about what you should or should not claim as an allowance then seek the advice of the experts.
At Sherlock Accountants, we can support and advise you on all your tax obligations so if you need help, just get in touch, we would be happy to hear from you.