It has been observed and agreed by several employers that there are multiple benefits of entertaining staff and clients. Since it is human nature that rewards and acknowledgements that we get for hard work, help to build loyalty and morale. In the same way, spending time to build relationships with the clients helps to make difference from your competitors.
However, before you pool in your energies and expenses in entertaining your clients and staff, let’s have an understanding of the staff entertaining allowance that you can claim to ensure your budget is not disturbed. This article will further help to deal with reporting inconsistencies. This includes the following point of discussion:
- What Is an Entertainment Expense?
- Client Entertaining Allowance
- Staff Entertaining Allowance
- The Bottom Line
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What Is an Entertainment Expense?
Entertainment activities like eating, drinking, and other facilities for the hospitality which includes accommodation and event tickets etc are approved by HMRC. Some types of entertainment include the following:
- Business Entertainment: Entertaining clients that are involved in a business project or building business relationships.
- Non-business Entertainment: Being part of business acquaintances.
Client Entertaining Allowance:
Client entertainment covers expenses of hosting present customers, potential customers or everybody else who isn’t an employee. According to HMRC, it needs to be totally free to be on the list of client entertainment. Unfortunately, in maximum cases, the expense of hosting isn’t always tax-deductible, neither is VAT on expenditure recoverable. However, it’s possible to make entertaining be a little more tax-efficient.
Furthermore, it is suggested that when you pay for client entertaining, never pay through personal accounts but business accounts. Even if the expense does not come under allowable deduction because of corporation tax purposes, you will still be able to save your income tax.
VAT and Entertaining Overseas Businesses:
It is impossible to claim VAT on client entertaining expenses until you are dealing with overseas clients. In this case, the rules are relatively complex. According to HMRC, it is possible to recover VAT when it is the case of the entertaining expenses of overseas clients. However, the reasons behind are the same is that it is to develop business relationships.
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Staff Entertaining Allowance:
Before we dig into the discussion of staff entertainment, let’s first understand how HMRC views an employee and relevant conditions. The main condition is that the individual must be paid from your business and should be on your payroll as well. This clearly means that the allowance can’t be claimed for the individuals, shareholders, and subcontractors who do not work for your business.
Moreover, this is important to know that if you are a sole trader, partner or associated with LLP, you can’t claim for the allowance since there is no major difference legally between you and the business entity.
Staff Entertaining and Tax relief:
Staff allowance for entertainment is typically taken into consideration to be allowable and is tax-deductible. Allowable prices in this context include food, drink, entertainment, venue hire, delivery and single day accommodation. VAT-registered agencies also can get better VAT incurred on allowable expenditure.
While there may be no restriction can declare in this area, there are some regulations to be conscious of. For example, if people inside a company have near relationships or are spouses and children and dine collectively this turns into a grey area. The key factor is the purpose at the back of the event – it should be for the company growth and charges must be kept.
It is additionally mentioned that, in principle, a worker is suitable for Income Tax at the price of any gain given by their employment, such as the expense of any entertaining allowance. To keep away from this the organisation may want to choose, make a voluntary disclosure to HMRC or the famous choice is to hold in the limitations of the Annual Party Exemption.
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The Bottom Line:
With the hope that this article based on staff entertaining allowance helped to develop a better understanding, we can say that entertaining allowance turns out to be advantageous for the employer. However, there are certain conditions to claim and get the benefits of these expenses. The tax relief and claim apart is a bit complex which needs to be handled professionally for seamless processing.
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Disclaimer: This article intends to provide general information based on staff entertaining allowance.
