When running a business, understanding what costs you can claim back can be tricky, especially when it comes to entertainment expenses. Many business owners wonder, Is entertainment allowable expenses?.
In simple terms, entertainment costs are usually expenses spent on entertaining clients, like meals, drinks, or events. But can these be claimed back as business expenses? Unfortunately, not all entertainment expenses are tax-deductible in the UK.
In this article, we’ll break down what counts as allowable, what doesn’t, and how to manage these expenses smartly to avoid any issues with HMRC.
Tax regulations on entertainment cost deductibility are strict and sometimes confusing. The fact that the cost is paid for business reasons does not make it exempt. Subject to certain limited exceptions. No deduction is allowed for the business entertainment and gifts in calculating taxable profits.
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What Counts as Business Entertainment?
Business entertainment is the provision of free or subsidized hospitality or entertainment. Hospitality includes the provision of food and drink. Related incentives, for which the beneficiary did not make a bill.
It also extends to subsidized hospitality whereby the charge is made to the recipient. Which does not cover the costs of providing entertainment or hospitality.
Examples of business entertaining would include taking a supplier to lunch. Thus. taking customers to a day at the races, or inviting them to a box at a rugby match, and suchlike. The definition is wide.
Exception 1: Entertaining employees – Entertainment Allowable Expenses For Staff?
One of the key exceptions to the universal law is that entertainment costs can not be excluded. A deduction allowed for the cost of Entertaining Expenses. As long as the costs are incurred wholly and only for the trade.
The entertaining of the staff is not incidental to the entertaining of customers. e.g. A company would be able to deduct the cost of the staff Christmas party in calculating its taxable profits. But, if a company takes customers to Wimbledon.
Some employees also attended which is not enough to guarantee a deduction. As the entertainment provided for the employees is incidental to that for customers.
It should be noted that unless an exemption is in point. The employees may suffer a benefit in a kind tax charge on any entertainment provided.
Exception 2: Normal course of trade
The disallowance does not apply where the business is that of providing hospitality. As such a deduction allowed for the costs incurred in providing that hospitality. As long as they incurred wholly only for the business.
Businesses such as restaurants and events management companies would fall into this category.
Exception 3: Contractual obligation to provide entertainment
Where entertainment is provided under a contractual obligation. Thus this is not treated as business entertainment and a deduction is allowed for the cost. A common example would be where hospitality is provided as part of a package.
The client will be willing to show that they have earned a complete return for the product given.
Exception 4: Small gifts carrying an advert
The provision of business gifts is treated as a business entertainment the result. Deduction for the costs is not generally allowed. There is an exception for gifts costing not more than £50 per year per recipient.
Which bears a conspicuous advert for the business. An example of a deductible gift would be a diary or a water bottle featuring an advert for the business.
Remember…
Entertaining Expenses incurred for business purposes does not mean that it is allowable. Business entertaining needs to add back in the corporation tax computation.
Extra note: CTA 2009, ss. 1298 – 1300.
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Last Words
In conclusion, understanding if entertainment is an allowable expenses can help you avoid unnecessary tax issues and keep your business on track financially. While it might seem like a simple category, HMRC has clear rules that make it important to review each expense carefully.
By distinguishing between what qualifies as an allowable business expense and what doesn’t, you can stay compliant, make better financial decisions, and ultimately, ensure that your business operates smoothly without unexpected tax surprises.
Disclaimer: The information about Is Entertainment Allowable Expenses? provided in this article including text and graphics. It does not intend to disregard any of the professional advice.
