By Thomas Julier, Accountant at Hive Business
Entertainment expenses can be a hard one to get your head around, largely due to there being so many different subcategories – Working lunch, corporate hospitality, client hospitality not to mention everyone’s favourite the staff party!
So which ones are allowable for tax?
If we start with the easiest one, client entertainment – this gets a pretty resounding no from HMRC when asked if it is an allowable deduction for tax regardless of whether it is for a current client or a potential client.
However, in general, it is still better to pay for this through the company (if you have one) as it saves on income tax that you would pay on withdrawing the money out of the business if paying personally.
On the other hand, entertaining your staff may be eligible to claim tax relief on. However unless the staff entertaining meets a certain criteria then it is likely to be a taxable benefit for your member of staff.
The criteria that need to be met in order for HMRC to class it as a “qualifying event” and therefore not be classed as a taxable benefit are as follows:
- The event or events must be annual and not just casual hospitality. For example a Christmas party or a summer BBQ.
- The event must be open to all members of staff this doesn’t mean they all have to be in attendance but they must have the option to be.
- The total cost of the event or events must not exceed £150 per head. This includes any additional cost such as transport and overnight accommodation.
If any of these criteria are not met then the whole amount becomes a taxable benefit. So, for example, if you were to have both a Christmas party and a summer BBQ and the total amount per head came to £160 then the whole amount would have to be declared by the employee as a taxable benefit, not just the £10 in which it exceeds the limit.
With regards to entertainment in the form of meals out for the directors, this is unfortunately not allowable. The only way in which a directors meal would be allowable is if it was to meet the criteria of travel and subsistence.
Make sure to account for entertainment correctly. Neither you nor your staff wants extra tax for Christmas!
If you are unsure about a specific situation or have any other questions, it is always worth getting in touch with your accountant. We are here to ensure that you are not left out of pocket because of these rules that you may not even be aware of. Call us on 01872 300232 or email [email protected].