Business entertaining when you are self-employed or a small business could very well be a major part of your business development, helping to establish and grow your business relationships to help your small business grow and thrive. Claiming tax relief on your entertainment is a complex and grey area, read on to find out more.
Can I claim entertainment as a business expense?
Business entertaining expenses and any VAT incurred can be claimed back if the expense relates to your employees.
HMRC definition of an ’employee’ is someone who is on your business’ payroll and being paid a salary. This means that shareholders of a company do not qualify and neither do subcontractors, whose services you utilise on ad-hoc basis. Therefore you are able to claim staff entertaining expenses, but when it comes to business entertaining, you are unable to claim tax relief on your tax return or claim back VAT.
What if I am sole trader or a partner in a partnership, am I considered an employee of my business?
If you’re a sole trader or a partner in a partnership you do not count as an employee of your business as you are legally you are not a separate legal entity from your business, for example, like a Director of a limited company.
I am Director of a limited company, am I considered an employee of my business?
This is where the tax relief benefits become a little less clear.
Business entertaining between directors of a limited company only does not qualify for tax relief or a VAT reduction.
However, if you are a director of a limited company and are meeting with clients or travelling away from your normal place of work on a business trip, then you can claim for your business expenses and VAT. The expenses you can claim for include the cost of travel, accomodation and meals.
This is also true for employees, sole traders, partners and subcontractors who work at the limited company and are treated like employees.
So for example, if you have a celebration or an important internal meeting between directors, make sure that the event takes place away from the office.
Is it worth putting business entertainment expenses through my limited company?
Although entertainment expenses cannot be offset against your limited company’s Corporation Tax bill, they are legitimate business expenses and represent a more tax-efficient way of paying for entertainment costs than using your personal post-tax income.
If you decide to pay for business entertainment costs out of your own pocket, you will have to pay income tax on the dividends/salary you extract from your company first.
Clearly, any expenses you do process through your company must be genuine business costs, and not ‘excessive’. Taking a prospective client for a £1,000 business lunch, for example, would be hard to justify.
If you have any doubts over a particular expense, we recommend you speak to us to help you navigate through this complex, grey area.
What can I claim for under business entertaining according to HMRC?
Here is a list of expenses you can claim, by no means exhaustive, but can give you good idea of what you can claim for:
- food and drink
- accommodation (e.g. hotels)
- theatre and concert tickets
- sporting events and facilities
- entry to clubs and nightclubs
- use of capital assets such as yachts and aircraft
- payments made to third party business entertainment organisers
- free samples
- business gifts
- when you provide entertainment or hospitality only for the directors or partners of your business, outwith the office
Can i claim expenses when entertaining my staff?
When you’re entertaining your staff you can claim tax relief when completing your annual accounts if you’re a limited company.
If you plan on hosting a Christmas party this year, you can claim up to £150 per employee, and this qualifies as a taxable benefit.
Be careful, if you do not follow the guidelines for entertaining employees carefully, you could not qualify for this valuable tax relief. Read more here on how to stay within the rules.
Claiming expenses on your tax return
At Mirandus Accountants, we understand what it is like to be a small business owner, as we are a small business ourselves. As a Chartered Tax Advisory practice, we are experts in tax, and as reflected in our testimonials, we provide tax expertise with empathy and understanding to your own unique set of circumstances.
We are available right now to help you complete your tax return early so you know how much tax you need to pay and by when.
If you are due a refund, it makes perfect sense to receive this as soon as possible. We are working with many self-employed individuals and business owners who have already filed theirs and we are ready to help you too.
Contact us today to see how we can help you.