Can I claim tax relief on Business Entertaining?
The answer to this question depends on who the business is entertaining. To find out more information, please watch our video.
What if I am entertaining Employees?
If you are entertaining an employee of the business the answer is yes. You can reclaim the VAT and claim tax relief on the expense. The reclaiming of VAT only applies if your business is VAT registered.
HMRC has strict rules on who is an employee. Former employees don’t qualify, nor do subcontractors or shareholders who don’t work in the business. As a guide HMRC are looking for an employee to be on the business payroll and being paid a salary.
You can reclaim the VAT and claim tax relief on an annual staff entertainment event such as a Christmas party if all staff are invited and the cost per head doesn’t exceed £150.
If a number of small events are held during the tax year and the total staff entertainment costs more than £150 per head, you can still claim the VAT and tax relief. The functions totalling less than £150 are non taxable but any other functions will be assessed for income tax on the employee as a benefit in kind and they may have additional tax to pay.
What if I am entertaining anyone else?
If you are entertaining a client, customer, supplier or anyone else the answer is no. You can record the expense in your accounts as business entertaining, but you can’t reclaim the VAT element or claim tax relief on the expense.
What happens if my business has only directors and no other employees?
HMRC state that if the entertainment is only for directors then it doesn’t qualify for tax relief or a VAT deduction. The only time meals for directors qualify for tax relief and a VAT reclaim is if they take place when the director is travelling on business away from their normal place of work. The same rules apply to tax relief for sole traders and partnerships.
I hope you found that useful. If you have any queries, please get in touch with us. We’d love to help.