Entertainment – when is it tax deductible?

If like a lot of people you’re under the impression that entertaining simply isn’t tax deductible, think again as there are some situations that you can claim back your tax when entertaining a particular group of people. Read on to find out how you can take advantage of it.

A perk of the job

You’d be absolutely right in thinking that activities such as buying your client drinks after a meeting, taking them for dinner, or throwing a company launch party aren’t tax deductible. However, spending money on entertaining one group of people is – your staff. Unfortunately there’s a twist, so you do have to be careful in how you apply it.

Who it applies to

HMRC says that this rule is for directors, however they allow other types of business to enjoy the benefits too, so if you’re a sole trader or partner in a firm, you can take advantage of it too.

What’s the catch?

Throwing a staff party should really be a treat for your employees, but if they have to pay tax on the cost of the event they might not quite see it that way. Unfortunately, that’s exactly how HMRC see it.

Entertaining staff is classed as a taxable benefit in kind (BiK) for employees. So, the only way around this is for the company to pay this on the employee’s behalf, which will more than likely wipe out a large part of any tax deductions you will have received. So, is it worth the trouble?

The annual shindig

If you hold an annual event for your employees such as a Christmas party or summer get together then you’ll definitely benefit. These are situations that HMRC considers tax deductible for you and tax-free for your staff – as long as the total cost is no more than £150 (including VAT) per annum per employee.

Bringing staff and customers together

If you organise an event and invite both employees and customers, HMRC will view it as business entertainment and therefore not tax deductible. However, where an element of the event cost is based on a charge per head you can claim the portion that’s charged for your staff.

For example, company X hosts a summer barbeque for its 50 employees and top 100 clients. Costs to host the event are:

  • Marquee £2500
  • Barbeque equipment £500
  • Garden furniture £300
  • Entertainment £10 per head
  • Food and drink £30 per head

Company X can claim for food, drink and entertainment, but only for its 50 staff at £40 per head, so a total of £2000 can be claimed by the company and is tax-free for the employee.

When organising an event like this it’s worthwhile asking suppliers to break their charges down on a per head basis for all of the elements that they possibly can, so that you can claim that amount as a deduction for all employees attending.

Another treat for employees

The £40 per head amount used in our example above is well under the £150 exemption, and on 6 April 2015 HMRC introduced another benefit that makes the employee BiK tax exempt if it costs you less than £50. This means that the £150 exemption is untouched and can be used for another employee event at some other time during the year – but don’t forget the per head rule.

To discuss this post or to find out how KPP can help you make the most of your tax allowances contact Stephen Usher on 0141 418 6550 or email stephen.usher@keypp.co.uk

– See more at: http://www.keypp.co.uk/entertainment-when-is-it-tax-deductible/#sthash.g9zeAsqv.dpuf

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