When we are working with our clients, one topic comes up on a very regular basis: What is and is not allowed when it comes to entertainment and what are the bookkeeping rules surrounding it? It can be a tricky topic to get your head around with so many different types of entertainment, and the rules that go along with it.

What entertainment is allowable for tax purposes?

Firstly, let’s start with what does ‘allowable for tax purposes’ mean? This means that the cost of the entertainment can be offset against your income, and in turn reduce your corporation tax. HMRC will only allow certain types of entertainment to be tax deductible.

In order to qualify, the entertainment must be for your staff, and must be wholly and exclusively for business purposes. To break this down even further, a member of staff is classified as someone who is on the payroll. So, one of your dental nurses, or practice manager is likely to qualify as a staff member. A self-employed associate dentist will not.

Allowable entertainment includes:

• Staff parties, if they are seasonal, e.g. Christmas party or Summer BBQ – it should however be noted that there is a hard limit of £150 per staff member per year, including VAT and any transport costs.
• Staff lunches
• Internal staff meetings
• Business meetings with colleagues (although, it should be noted that these are only allowable if they are held on business premises and are available to all staff)

Trivial Benefits

Trivial benefits are tax-free employee benefits. In other words, they are minimal value gifts that you are able to give to your staff.

Certain criteria needs to be met in order for them to be classed as a trivial benefit:

• It costs £50 or less
• It’s not cash or a cash voucher – please note that a gift voucher is fine
• It’s not a reward for the staff members work or performance
• It’s not in the terms of their employment

If you are a director of a closed company, you are allowed to give yourself up to 6 trivial benefits a tax year, totalling no more than £300.

What about the bookkeeping for allowable entertainment expenses?

Entertainment that meets the criteria discussed above should all be put to a 100% Entertainment code, Staff entertainment code or similar. Trivial benefits should also be put to this code.

Non tax allowable entertainment

This is a slightly easier area to discern. HMRC will not allow the following for tax purposes:

• Taking a client (or potential client) for a meal
• Business lunch meetings
• Entertainment solely for directors or partners e.g., a director’s lunch.

It should be noted, however, that even though these are not tax deductible, they are still allowed to be paid for by the company. They will simply just not result in a reduction in the corporation tax you are to pay.

Bookkeeping for non-allowable entertainment.

Any type of non-allowable entertainment should be put to a 0% business entertainment code or similar. It is important to keep the tax deductible and non-tax deductible entertainment separate to ensure that you are getting the maximum tax relief on qualifying entertainment, and not getting tax relief for any that does not qualify.

If you have any questions specific to entertainment expenses, please get in touch and we’d be happy to advise further.