Which Business Entertainment Expenses are Tax Deductible?

Business Entertainment is broadly grouped into two categories, one is entertainment of employees and the second is entertainment of clients. This blog is going to discuss the entertainment of clients and potential clients, if you would like to know more about the entertainment of employees, see our previous blog.

What is business entertainment? Providing business entertainment is the provision of hospitality to your suppliers, customers or potential clients. Entertainment can include meals, coffees, event tickets, nightclubs, drinks, sporting events or even use of business assets.

If I entertain clients, what VAT can I claim back? We understand the entertainment of clients is important to business and client retention. Your business can pay for the entertainment of clients or people who work outside your business but you are unable to claim any of the VAT or a tax deduction on any costs other than for the employees of your firm.

Where should I code my business entertainment to in my accounts? We would recommend having a nominal code in your chart of accounts dedicated to business entertainment, which can also help track how much you are spending and is helpful for your accountant to review the transactions at year end.

Can I send gifts to suppliers or customers, can I entertain them and claim the VAT back? Currently, you can send reasonable gifts to suppliers and customers and this is deductible up to £50 as long as it is business related and has your logo on, like a mousemat, calendar or pen. This would also include the sending of Christmas cards to customers. However, if the gifts consist of food, drink, tobacco, or any voucher that can be exchanged for cash. This is not deductible for tax purposes and the VAT would be irrecoverable.

I want to entertain potential clients, can I claim back the costs of food and drink? You can pay for any business entertainment and your company can reimburse for the cost, however, your business would be unable to claim any tax deduction or the VAT back from HMRC. We would always suggest writing on the receipt who you were entertaining and how many people were there including employees.

I am hosting an event which is open to employees and clients, what VAT can I claim back? When you are hosting an event which is a mixture of employee welfare and entertaining clients or prospective clients. A track day, for example, which is open to employees and clients, the VAT would be shared between which can be recoverable for employees and non-recoverable for the clients.

What about Overseas Clients, can I claim VAT back for entertainment? An overseas customer is defined as any customer not ordinarily resident or carrying on a business in the UK including other EU member states. You can reclaim VAT on the cost of entertaining an overseas customer of the business providing, in HMRC's words, it is "of a kind and on a scale which is reasonable". For example, this could be buffet at work or business meeting at a restaurant and you need to make sure the business owner or staff are present as well. You also cannot reclaim VAT on what HMRC considers “corporate hospitality events”, such as golf days, track days, trips to night clubs or sporting events. If your claim does not meet HMRC’s definition of “reasonable” you would be unable to claim and potentially, this could result in it being considered a perk and there could be potential additional tax implications.

Other important considerations Business entertainment is an important area of growing your business and gaining new clients and if you are going to provide business entertainment you must make sure you can only claim back the VAT and tax deduction on what you can. Most businesses actually get these expenses wrong and need help distinguishing what is recoverable or irrecoverable but we would always suggest you should check with your accountant to make sure. If you would like to discuss this with us, book a discovery call to discuss entertainment or any of your accounting needs: https://activeledgers.as.me/free15

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