E is for Entertaining - A to Z Accountancy Top Tips
An accountant walks into a bar and another customer says,
‘Don’t worry I’ll get this, I’ll just put it through as a business meeting’.
Okay, sorry, there is no funny punchline the accountant just rolls their eyes and shouts ‘Nooo’ in their head.
This is entertaining a customer, potential customer, or any on who isn’t an employee.
Your company can pay for this but it is not an allowable deduction for corporation tax purposes or claim back the VAT.
It’s still worth paying from the company though, as it saves you the income tax you would otherwise pay on withdrawing the funds to pay the costs personally.
Staff entertaining as a reward for good work it is allowable and VAT can be reclaimed.
There are restrictions and caps when it relates to staff entertaining in certain circumstances such as social events, such chat to your accountant if you aren’t sure.
But be careful if the staff member is acting as a host, and the purpose of the cost was to entertain the client, then no VAT can be reclaimed at all.
If your business has one or more directors, but no other employees, then the issue becomes more difficult.
HMRC say that the cost of providing entertainment only to directors or partners doesn’t qualify for tax relief or a VAT deduction.
But they also say that if the directors or partners are travelling “away from their normal place of work on a business trip”, then any VAT suffered on the cost of travel, accommodation and meals can be reclaimed. The rules for tax relief would mirror this, and this also applies to employees, sole traders, partners, and to subcontractors who are part of the team and treated like employees.
So if you want to have a celebration meal for two directors who are the only employees of the business, make sure that the meal takes place away from the usual place of work and as part of a business trip which the directors would have made anyway, for example to see a client!
Your company can pay the costs associated with your own entertainment, but it will be a benefit in kind, thereby leaving you no better off tax-wise than if you’d paid the cost yourself!