You are currently viewing our locale site. For more relevant information select a location from the drop down or dismiss to continue browsing. Entertaining people can be a very enjoyable part of being in business - but when can you claim tax relief on the cost of entertaining, and what about VAT?
Here are a few important things to bear in mind when it comes to tax and VAT on entertaining costs. This is because if your business is not registered for VAT, it cannot reclaim any VAT on purchases, apart from in certain circumstances when it registers later. Former and previous employees don't qualify, nor do subcontractors and nor do shareholders who don't work in the business. An employee has to be someone who is on your business's payroll and being paid a salary.
If you're entertaining anyone else, that counts as business entertainment rather than employee entertainment, and you can't claim either tax relief or VAT on the cost of entertaining them. Find out more about claiming expenses in FreeAgent.
The cost of entertaining staff as a reward for good work, or to keep up morale, is classed as employee entertainment , for which you can both claim tax relief and reclaim any VAT you pay. For tax relief and VAT reclaim to be allowed, the purpose of the event has to be to entertain employees. If there's an event with a mixed group and the purpose of the event is to entertain everyone equally, then you can claim back the VAT on the cost of entertaining your employees only.
For example, if you have a staff Christmas party and allow your employees to bring a friend, you'd have to work out the amount of VAT you paid on the cost of entertaining your employees and only claim that. Some businesses may wish to offer their customers various forms of entertainment such as golf days or sporting events.
They may wish to offer hospitality events to say thank you for their custom. However, when it comes to these types of business entertainment, output tax will be due. There are often occasions where meetings will take place, perhaps in the office, with food and drink.
Private use charges will not apply in this case. There are some tricky areas to navigate when it comes to entertaining clients in specific scenarios.
For example, many use corporate boxes at sporting events as a way of entertaining clients and potential customers. When it comes to a client, it cannot be recovered as it falls into that bracket of entertaining in business for private purposes.
For employees, it can be seen as a form of employee entertainment and rewards and so VAT can be reclaimed in this scenario. There has to be a reasonable scale for entertaining overseas customers, as stated by HMRC. So things like trips away, evening meals, sporting events, etc. You cannot claim CT relief for entertaining contractors or suppliers. However, it is worth noting that this only covers those who are employed and currently on your payroll. You cannot claim tax relief on costs relating to entertaining ex-employees, who may have only recently left the business, or any sub-contractors.
If you are a director, then you can usually only reclaim VAT on expenses relating to a business trip away from your usual place of work. However, HMRC notes one exception:. If you are a partner, or your business is an LLP, then you cannot claim CT relief or VAT, as there is no legal difference between you and your business. Attending networking events — this is deemed as an allowable business expense, so you can claim both VAT and CT relief.
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