Claiming Tax: When Entertaining Clients & Employees

As an employer covering the costs of your employees providing entertainment for clients you have certain tax reporting obligations when it comes to entertaining.

Types of entertainment to be included:

  • eating
  • drinking
  • ‘business entertainment’ of clients for discussing a particular business project
  • ‘business entertainment’ of clients for forming or maintaining a business connection
  • ‘non-business entertainment’ of clients for entertaining a business acquaintance for social reasons

What is an entertainment expense?
HMRC defines entertainment expenses as those costs you incur when providing either:

  • subsidised hospitality
  • or free hospitality to clients or employees

Examples of entertaining employees or clients to be included:

  • food and drink
  • theatre or concert tickets
  • sporting event tickets
  • use of company assets such as executive suites

Entertaining employees

If you are entertaining employees, then according to the HMRC, this is classed as:

  • ‘staff entertainment’

This allows you to reclaim the tax on any VAT you pay on entertainment purposes.

A limited company can pay for an annual event, without personal tax implications, providing the total does not exceed £150 per head. The ‘annual event’ doesn’t have to be just one event it can be multiple events throughout the year.

For example:

  • a summer BBQ
  • a Christmas party

Both would be covered for corporation tax, providing the total of both does not exceed the £150 per head limit.

Businesses can reclaim the costs which are applicable to employees, for example you have invited two employees and two guests you can reclaim 50 per cent of the VAT.

It is important to make reasonable assumptions about what is and isn’t acceptable in reclaiming tax. Be sure to read up on the HMRC guidelines if you have any doubts on what staff costs you can claim back on, including expenses.

Entertaining clients

Paying to take potential and current clients out to entertain them in the hopes of generating new business can be a costly business. Although there are limitations behind what you can claim tax back on, it is still worth paying for entertainment through the company accounts, as it saves you the income tax you would otherwise be liable for when withdrawing money to fund the event by paying for it personally.

When hosting an event to entertain clients, you can only reclaim the VAT or claim tax relief on employees attending the event, providing the event is a mixture of staff and clients. Costs can be reclaimed on employees only, not clients. Therefore it is important to consider what events you host and the purpose of them, as entertaining clients can prove expensive if not kept in check.

We recommend sourcing a local service provider with membership benefits such as discounted access to events and tickets.

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