A common question we get asked is which Entertaining costs are allowable expenses for tax?
We have detailed the main types of costs which can be incurred below and would recommend setting up a different code in your accounting software for each of them to split out the analysis (And keep your accountant happy! 🙂 )
Please watch this short video discussing the rules and or read below.
Staff Entertaining
Staff Entertaining costs for annual staff events where everyone is invited are allowable for tax and VAT can be reclaimed as long as specific rules are met. Please be careful to view the rules in our separate detailed post here. In short, the allowance is £150 per person in total and the allowance is an annual one based on the personal tax year to the 5th April. Partners of employees are also given an allowance. If rules are not met and totals per person are exceeded, it can mean the full amounts paid become taxable benefits on your employees or the Directors.
If you did want to hold a staff event with costs over the limits, you can do so and either accept that the employees will pay tax on the deemed benefit given or choose to come to an arrangement with HMRC to pay the tax due for the employees. Please contact us for more details on how to do this before paying for the entertainment.
Client Entertaining
The entertaining of your clients, suppliers or even your accountant! 😉 can be paid for by your business, but you will not get tax relief on the costs incurred or be able to reclaim any VAT paid on the expenses incurred. The expenses need to be deemed wholly and exclusively for business purposes, meaning you could show to HMRC that there was a perceived benefit for the business in expending the money. Unfortunately just a night out with friends wouldn’t meet this test and HMRC would look to deem the expense as a personal drawing or personal income.
Subcontractor Entertaining
Subcontractors are not classed as employees, HMRC class them as the same as Clients and the costs are not allowable to tax or VAT reclaims. If you take out a mix of subcontractors and employees, for instance if you invited subcontractors to a Christmas party, you will need to split out the costs relating to the subcontractors.
Trivial Benefits
Small Trivial amounts paid out to purchase gifts for employees, directors or direct family members of directors can be paid by the business and allowable for tax if they are £50 or under each, with Directors having an annual limit of £300 each. Gifts cannot be cash or cash equivalent. Again its important the full rules are followed on these gifts to avoid it becoming a taxable benefit in kind on the employees / Directors. see our full details article here.
Employee or Director meals
Paying for meals for employees or directors can be allowable to tax and paid for by the business as long as certain rules are met. HMRC view everyday meals incurred in normal trading to be essential for living and therefore not normally allowable. However in some circumstances they can be allowable to claim, these are when you are working away from your normal place of business or working on an usual project in working hours which required to work through lunch or be working of an evening.
Entertaining costs and meal costs in general is a tricky area to know if you can have tax relief, so please do not hesitate to contact us for further guidance on how costs incurred should be analysed.