We are often asked by businesses if they can claim back the costs of entertaining.
The answer to this question all depends on who it is that you are providing entertainment to, so we have listed below a few important things to bear in mind when looking into claiming back costs of entertaining through your business…
Who can claim business entertaining expenses?
If your business is VAT registered there are some entertaining costs you will be able to reclaim.
What counts as ‘entertaining’?
HMRC classes entertaining as providing free or subsidised hospitality such as:
- food and drink
- theatre and concert tickets
- sporting events and facilities
- entry to clubs and nightclubs
- business gifts
Who can you entertain?
HMRC only allow for tax relief and the claiming of VAT on the cost of entertaining your employees.
You can include the cost under “staff entertaining” and claim tax relief on it. You can also reclaim any VAT paid on the cost of providing the entertainment.
If you’re entertaining anyone else, such as clients or potential clients, this counts as “business entertaining” rather than staff entertaining and you cannot claim either tax relief or VAT.
You will still need to record the cost of entertaining clients in your accounts, under a category of “business entertaining”.
Who counts as an employee?
An employee must be someone who is currently on your business’s payroll and is being paid a salary.
Former and previous employees do not qualify, nor do subcontractors or shareholders who don’t work in the business.
What can’t you claim?
You can reclaim VAT and tax relief if you are entertaining employees as a reward for good work, or to keep up morale.
However, if your employees are acting as hosts to a group of customers at an event, this counts as business entertaining and there will be no tax relief or VAT deduction available on any of the cost of the event.
Can I claim for the staff Christmas party or another annual event?
If you own a Limited Company you will be exempt from tax and National Insurance on the cost of employee meals or other staff entertaining costs such as the cost of the office Christmas party or summer party. These expenses are seen as rewards for hard work/motivational expense and are for a clear business purpose.
To claim, the average cost per head limit of £150 must not be exceeded across the year – this includes food, drink, transportation and accommodation. The events must be open to all employees.
How about gifts?
Gifts to non-employees
You can send Christmas cards and small promotional gifts of up to £50 to non-employees as a tax-deductible expense. However, the gifts must carry a clear advertisement for the business (e.g your branding or logo on the gift itself, not just the wrapping). Gifts cannot be alcohol, food, drink, tobacco or vouchers.
Non-promotional gifts and larger gifts are classed as entertaining and are not tax deductible as an expense.
Gifts to employees
If you are self-employed, you don’t have to report or pay tax on any personal gifts to your employees.
If you are a limited company and give your employees a gift of less than £50 (e.g. a couple of bottles of wine or box of chocolates) then this will not normally be taxable.
If you have any questions around claiming entertaining expenses, get in touch with us here at Magpie Accountancy, we’ll be happy to help.