As a business owner, can I claim for entertaining costs as a business expense? For instance, when you are out and about entertaining clients that are related to your work? Well, there may be times when you are running your own company that you would like to drum up some new business with former, current, or potential new clients. Indeed, this can, in itself, be an excellent way to generate new work for your business. On these occasions, you may not know what you can claim from your company. My article will go over this and explain how the rules work and what you might like to think about here.
General business meals for you whilst you go about your work have different rules.
There are also separate rules for business gifts that you should consider if you are thinking about making a business gift.
The types of entertainment
There are two different types of entertaining costs when you meet business contacts. These could be either formal or informal, and they will depend on who you are meeting and the type of occasion. The two types of costs that you may incur as a result of your work could include:
- The `business entertainment’ of clients. This type of cost could be you going out to discuss a certain business project or you to form or maintain a business connection. It might also include you meeting someone to discuss some potential work that one of your clients may hire you.
- The ‘non-business entertainment’ of clients. This type of cost may occur when you meet a business contact for social reasons. Such a meeting could be a day out at the races or to attend a sports event. It could also be some other social day out.
Please note, when you consider if you can claim for entertaining costs, these costs are not Corporation Tax (CT) deductible. They are though business costs, and therefore the `benefit’ of these are not taxed on form P11D.
Although entertaining costs are not a CT deductible expense, they are an actual business expense. What’s more, it is more tax-efficient for your business to pay for these rather than you paying for them yourself. The reason for this is because your business will pay for these out of its pre-tax income. Compare this to you paying for these on a personal level -when you do this, you will pay for them out of your post-tax income.
What’s more, for each expense that you claim for, you will need to justify that it relates to your business. Therefore, if you hire a private plane or luxury yacht for the day, this may be hard to justify for drumming up some new business. In contrast, meals and drinks are a much simpler cost to justify.
Can I reclaim the VAT on entertaining costs?
Unfortunately, you are not able to reclaim the VAT on entertaining costs.
The exception to this rule is if you are holding an `annual event’ (see below) for your employees. You can reclaim the VAT on this cost if it fits in with the guidelines for claiming for an `annual event.’
If you hold an event for staff and non-staff, you are only able to reclaim the VAT element that relates to your employee’s costs.
These rules are quite complex, and for more info, please read VAT Notice 700/65.
The Annual event
Please note, you can claim for one entertainment type expense each year without the need to consult HMRC guidelines. This one expense is the annual Christmas party, which is now known as the `annual event’.
The allowed amount is £150 per company official and employee. Over a tax year, the annual event can also be several events.
Providing that the amounts paid through the tax year do not exceed the limit of £150 per person, they are CT deductible.
When you take a look at claiming for entertaining costs, it is worth bearing in mind that they can be handy to generate new business leads. They can also help you land potential future work. As I mention above, entertaining costs are not directly tax-deductible. However, your business should pay for these costs as opposed to you paying for them on a personal level out of your already taxed personal income. Being aware of this is one area that you may fail to observe if you are not sure how it works.
As a final thought, please keep a note of any entertainment costs when you incur these in the future.
Link to Contractor Advice UK group on