Claiming business entertainment expenses

There are several key points to remember when you’re claiming business entertainment expenses.

What do we mean by business entertainment?  Well HMRC's defintion is 'the provision of free or subsidised hospitality or entertainment. The person being entertained may be a customer, a potential customer or any other person'

As a starting point, business entertainment expenses are not allowable for tax purposes. However, that’s not the whole story and it all depends on who is claiming business entertainment expenses - you or the company.

business entertainment expenses

Director/employee – claiming business entertainment expenses

If you’re a director (or employee), you can be reimbursed for entertaining expenses tax-free, provided they are incurred wholly, necessarily and exclusively in performance of your employment (as set out in the taxes legislation for those who are interested!).

Provided the above condition is met, this means that:

  • The company can reimburse the director/employee for the cost of any business entertainment tax-free
  • The company can pay the cost of business entertaining directly without no tax consequences for the director or employee

What happens if HMRC consider these aren't business entertainment expenses?

The cost will be taxed on the director/ employee as earnings from their employment with the company.

It’s important to keep proper records when claiming business entertainment expenses, particularly if you need to justify the level of the expenditure.

If you fail to retain supporting information for your claim, HMRC may disallow the cost. They will argue that without records it cannot be wholly and exclusively incurred for business purposes.

It may be possible to avoid a tax charge if this expense was a trivial benefit (see our earlier blog here) though we say prevention is better than cure.

Company – claiming business entertainment expenses

As far as the company is concerned, the position is relatively straight-forward:

  • Any business entertaining whether paid for on behalf of (or reimbursed to) a director or employee is specifically disallowed for corporation tax purposes
  • Staff entertaining is not treated as 'business entertaining' so it is an allowable deduction for corporation tax purposes. You should show this expense separately in the accounts as it is a staff benefit and therefore a cost of 'staff welfare' (or similar).

What about room hire costs and associated entertaining expenses?

When your company hires a room for an event, where selling or other business activities take place followed by entertaining, you should be able to claim this expenditure as an advertising or marketing cost.

Take care to ensure that any promotion of the event reflects the sales, marketing or other business angle to justify this expense should it be queried by HMRC.

Our eBooks cover this and many other topics.  Check them out here.

And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at [email protected].

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