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Business Entertainment of Clients

In general, entertainment counts as business related if its purpose is to:

  • Discuss a particular business project
  • Maintain an existing business connection
  • Form a new business connection

By contrast, entertainment of business acquaintances won’t count as business related if its purpose is really social – even if there’s some discussion of business topics in the course of the entertainment. In such cases the entertainment will then be taxable on the individual providing the entertainment and may need to be included on a P11D.

 

The Consequences

  • Business entertainment is not an allowable tax deduction for Corporation Tax purposes.
  • The company incurring the cost cannot reclaim the VAT charged on client entertainment.
  • Assuming that a dispensation is in place for the company then the business related entertainment does not need to be disclosed on a P11D.
  • If the entertainment of clients is not considered business (it does not meet the conditions as outlined above) then it is Staff Entertainment (even if with a client) – see full details below.

 

Staff Entertainment

Generally any staff entertainment (or non-business entertainment) is taxable on the employee receiving the benefit. Staff entertainment includes expenditure such as taking your team out for a meal or drinks and providing gifts.

There is an exemption from tax, NICs and reporting if you provide a party or similar function for employees that meets the following three conditions:

  • It’s an annual event, such as a Christmas party or summer barbecue
  • The event is open to all of your employees
  • The cost per head of the event isn’t more than £150

The Consequences

  • If the staff entertainment meets the three conditions above no action is needed.
  • If the staff entertainment does not meet the three conditions this needs to be disclosed on a P11D.

Examples of staff entertainment that need to be included on a P11D include:

  • Events not open to all employees. For example, a Christmas party for directors only.
  • Events which or not annual. For example, drinks to mark the award of a major new contract.
  • Events that cost more than £150 per head.

 

If you would like to discuss this please book a chat about your business here.