Business Entertainment Expenses - Are any Tax Deductible?
We are frequently asked by clients what types of BusinessEntertainment Expenses can be claimed as a tax deduction againstcorporation tax through the profit and loss account of their limitedcompany.
To clarify this issue:
Business Entertainment is not an allowable expense that may be claimed against profit to reduce corporation tax.
However, in some circumstances, Input VAT may be reclaimed.
To determine what expenses may be deducted under the description of'entertainment' then a distinction needs to be made between businessand personal as different rules apply to each.
Business entertainment:
To meet the criteria for business entertainment, the expense must have been:
Not provided to an employee of the business
Were provided free of charge to the recipient
Definition of an employee for the purpose of business entertainment
A person directly employed by the business
A director of the company
A person engaged in managing the company
A self-employed person working for the company who receives expenses inthe same manner as an employee of the company, i.e. subsistence payments
Helpers or stewards essential in running company events
Who are not my employees for business entertainment purposes?
Ex-employees
Retired employees
Shareholders
Expenses that are considered to be business entertainment
Provision of food and drink
Provision of accommodation
Theatre and concert tickets
Sporting events and facilities
Entrance to clubs and nightclubs
Use of capital assets such as aircrafts and yachts for entertaining
Input VAT on business entertainment
Input VAT is not reclaimable on business entertainment.
There are two exceptions where input VAT is reclaimable; Airlinesproviding food and accommodation to delayed passengers and sportingbodies providing food to guests.
If the director entertains clients when the director has worked alate shift this would be a combination of subsistence (for thedirector) and business entertainment expenses for the clients. Theinput VAT on the proportion of expense attributable to the director maybe claimed, but not that of the clients.
Entertainment expenses for employees
Where entertainment has been provided to an employee that has beenprovided purely for business reasons, i.e. to improve morale or rewardthem for their hard work the employees were taken for a meal. Thepurpose of this meal was wholly for business purposes therefore theInput VAT is reclaimable but the expense is not allowable. If this'entertainment' had been open to all employees as a function thendifferent rules apply.
Any entertainment that had been provided to the employee (not opento all employees) that is above £50 in value in any one tax year isrequired to be declared as a benefit in kind on the employees P11 andclass 1a NICs will be charged.
Where the directors of a company incur entertainment expenses,neither, the Input VAT or the expense may be reclaimed because theexpense is considered entertainment, not a business expense.
If you are a client and would like advice on what expenses you mayclaim please contact your Personal Accountant. If you are not, pleasefeel welcome to book a free initial consultation.
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