Does HMRC actually want me to have a good time?
Does HMRC actually want me to have a good time?
The rules for entertaining clients and staff are different
June 7, 2016

We all love to have a good time. Whether your idea of being entertained is finding the most high-octane activity around, going out for a few (or a lot!) of drinks, or maybe having a quiet, sophisticated meal with a few others, the desire to enjoy ourselves is something which unites all of us.

From a subtly different perspective, entertaining can be a powerful weapon in building a strong business.

  • Treating staff helps to build team morale, and (if done well) can create an upbeat, passionate workforce who can, in turn, provide excellent customer service.
  • Entertaining clients well can improve relationships, lead to an improved reputation as clients refer others to your business and ultimately drive sales.

So it seems obvious, why wouldn’t you spend heavily in treating everyone associated with your business? Unfortunately, this is when that word no one likes to dwell on comes back to haunt us – Tax.
This is one area which HMRC have taken their time in developing some pretty specific legislation, and as the rules for staff entertaining are different, I will take these in turn:

Staff Entertaining
HMRC’s view on staff entertaining seems quite clear-cut on the surface; you can deduct funds spent on staff entertaining from profits. Note the small print, however, the entertainment must be:

  • Annual (i.e. Christmas)
  • Open to all employees
  • £150 or less per head

Note this last point – if you have more than one evening of entertainment in a year then the combined cost of these events must be less than £150 per head. Now for the sneaky part, if the entertainment does not satisfy these points, then this is taxable on your employees (technically known as a “Benefit-in-Kind”). Now, I have a feeling that if you tell your employees that they will have to pay tax on the entertainment, then this may well have the opposite effect than you were intending when you set up the annual staff party.

Client Entertaining
HMRC again have quite a refreshingly straightforward way of looking at this – feel free to entertain clients, but we won’t allow you to have any relief against your tax bill for this.

Unfortunately, this is both the beginning and end of the discussion – basically, HMRC does not consider client entertaining as “wholly and exclusively” for the purpose of trade. That being said, it may still be worth paying for client entertaining through your business (especially if you operate through a Limited Company).  If you do so, you won’t have to draw money from your business to pay for these expenses.

If you happen to be planning a large entertaining event for either your staff or clients, 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 us at

The information contained in this article is based on the opinion of Hive Business and does not constitute formal tax advice. Any tax outcomes will be based on individual circumstances, tax legislation and regulation, which are subject to change in the future. You should seek specific advice before embarking on any course of action. Hive Business does not provide regulated Financial Advice, including advice on investment, insurance or lending products or their suitability for you. This article is provided for information only and does not constitute, and should not be interpreted as, investment advice or a recommendation to buy, sell or otherwise transact, or not transact, in any investment including Bitcoin and other crypto. Any use you wish to make of any information contained within this article is, therefore, entirely at your own risk.

By Team Hive
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