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Entertainment expenses: What can (and can’t) you claim for?

Now that things are opening up again, you probably find yourself out and about, meeting clients and new prospects, much more than you have during the last 18 months. Plus, with Christmas coming up, perhaps you want to get the team together for a festive celebration, or simply reward them for a job well done under difficult circumstances.

All of which means you might be needing a refresher on what’s allowable as business entertainment. In this article, we walk you through the rules for claiming tax relief and VAT on eating, drinking and other hospitality.

Entertaining clients
HMRC’s rules for providing hospitality are pretty straightforward when it comes to clients – generally, such business entertainment is not tax deductible, nor can you recover any VAT paid. Basically, HMRC only allows tax relief and claiming VAT on the cost of entertaining employees.

That said, you can make client entertainment more tax efficient by always paying through the company account, instead of with your own money. It won’t count as an allowable business tax deduction, but it’s more efficient from an income tax perspective.

Entertaining employees
Thankfully, entertaining employees is considered to be an allowable business expense, meaning you can claim tax relief and reclaim any VAT you pay. This generally covers costs like food, drink, entertainment, transport, accommodation, and venue hire.

But we must stress this only applies to employees – which in HMRC’s eyes means those who are on your business’s payroll and are paid a salary. The entertainment of former employees, contractors, interviewees and shareholders (at least, shareholders who do not work in the business) isn’t covered, nor is the entertainment of any employees’ guests (even if those guests are clients). Also, if you’re a sole trader or a partner in an LLP or partnership, remember that you don’t count as an employee (because, legally, there’s no distinction between you and the business).

Another thing to note is that employees may be liable for income tax on entertainment. Your accountant will be able to help you figure out what does and doesn’t apply here, but a popular way around this rule is to stick within the limits of the ‘annual party exemption’, which covers annual events (such as the Christmas party or summer barbecue) that are open to all employees and cost £150 including VAT or less per person.

This is a simple summary only, but if you’d like more detailed info on entertainment expenses – or help with managing any other aspect of your business finances – drop Jupp Castle a line.

At Jupp Castle, we offer accountancy, taxation and financial advisory services to a wide range of businesses and individuals. Our services cover everything from payroll to pension investments, personal tax returns to Charity Commission filing.

We pride ourselves in offering a personalised, friendly service that takes the jargon out of accountancy.
Whatever financial or accountancy service you are looking for, Jupp Castle has the right expertise for you.

All our accountants are professionally accredited with many years experience across a wide range of businesses and individuals.If you’d like to discuss any of your accountancy or financial needs, please give us a call on 01252 84868 or contact us through the online form.

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