Are Entertainment & Networking Expenses Tax Allowable?
Posted on 18th October 2024 at 18:53
Entertaining clients, suppliers and staff are all critical to the success of businesses and the nurturing of business relationships.
When such expenses are wholly and exclusively incurred during the course of business, these are classified as legitimate expenses for business purpose so should be settled through the business bank account and offset against accounting profit.
So are all entertainment expenses tax allowable?
This is often an area of confusion for business, but the tax rules are clear.
HMRC states:
BUSINESS ENTERTAINMENT EXPENSES for Clients, Suppliers & Business Associates are NOT TAX ALLOWABLE.
STAFF ENTERTAINMENT EXPENSES are TAX ALLOWABLE.
Let’s go through these in more details.
What Are Business Entertainment Expenses?
THIS IS NOT TAX ALLOWABLE. HMRC considers this as free of charge or subsidised provision of hospitality, entertainment or gifts to people other than employees of the business. Below are a few examples of this:
Foods & drink as either snacks or expensive meals.
Gift of more then £50 cost value, per recipient.
Invitation to sporting or social events ie, football or theatre tickets.
Cost of maintaining assets used for business entertainment purposes ie, boat.
Incidental expense incurred directly / indirectly in association with the provision of business entertainment ie cost of invitation to customers.
What Are Staff Entertainment Expenses?
THIS IS TAX ALLOWABLE if incurred wholly and exclusively for business purposes and not incurred whilst entertaining clients or suppliers.
The maximum allowable staff entertainment expense per head (including cost for partner or spouse) is £150 (inc VAT) per annum. This can be incurred either as a one-off event ie Christmas party or as a number of smaller events over the year. This allowance can include any associated transport and accommodation cost. Any unutilised allowance cannot however be utilised in an alternative way. This means a director who chooses not to incur the tax allowable expense of £150 as entertainment cannot then claim this allowance against taxable profit as shopping vouchers or cash.
Entertainment expense for clients and suppliers attending a tax allowance staff Christmas party is acceptable. Staff expense incurred however whilst attending a hospitality or sporting event for the benefit of clients or suppliers is not tax allowable.
Are Staff food / Drink Expenses Tax Allowable In Any Other Situation?
HMRC rules states expenses are only tax allowable if incurred wholly and exclusively for the purpose of business. As food and drink is necessary to support the normal course of daily living it makes it difficult to justify such expenses as being for the purpose of business.
There are however circumstances when staff meals are tax allowable.
If incurred for subsistence purposes outside the normal working routine, staff food and drinks expenses are tax allowable. The maximum tax allowable subsistence expense is £5 for 5hrs travel up to £25 for 15hr travel. To clarify, expenses for meal cannot be claimed as subsistence if the same routine is followed most work days or place of work attended.
What Are Other Examples of Entertainment / Hospitality Expenses?
SMALL PROMOTIONAL GIFTS ARE TAX ALLOWABLE if less than £50 per recipient per annum and clearly displays the business logo or advert. For example, pens, water bottles or note pad distinctly displaying the business logo.
HOSPITALITY BUSINESS EXPENSES ARE TAX ALLOWANCE provided costs are wholly and exclusively incurred for business specific purpose. For example, a catering or restaurant business.
CONTRACTUAL OBLIGATION TO ENTERTAIN IS TAX ALLOWABLE provided the obligation is part of the wider business contract deal with the client or supplier and there is a clear benefit to the business for providing the entertainment.
So Are Networking Event Expenses Tax Allowable?
This is less straightforward!
NETWORKING EVENT EXPENSES ARE TAX ALLOWABLE: Attending organised business networking events to raise the profile is necessary for the purpose of promoting the business. Networking event expenses are deemed as marketing, incurred wholly and exclusively for the purpose of business and therefore tax allowable.
NETWORKING EVENT INCIDENTAL FOOD & DRINKS EXPENSES ARE TAX ALLOWABLE: If the event includes food and drinks that are an incidental and marginal part of the total event ticket cost, being neither easily identifiable or optional to exclude from the total cost, then the cost of food and drink is tax allowable too.
NETWORKING EVENT / MEETING ADDITIONAL FOOD & DRINKS EXPENSES ARE NOT ALLOWABLE: If the cost of food and drink is in addition to the event or meeting, easy to identify and not necessary to its success, this may be considered not wholly and exclusively for the business purpose. For example, food and drink purchased at a business or networking meeting ie, breakfast meeting or coffee catch-up meeting, is not taxable as the meeting could still be conducted without the presence of food or drink.
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