Business entertainment, business gifts and benefits

Tax on business entertainment and expenses is an area that can be really confusing for business owners and staff. In general VAT can’t be claimed, though if related to employees’ travel, subsistence or entertainment it’s allowed but with many caveats. If there is a third party (i.e. a prospective client), the VAT can only be claimed on the employee’s portion; and then only if the expenses are incidental.

Confused?

VAT can only be claimed on business gifts up to £50 per recipient per year.

If a business organises employee-only events, the VAT can be reclaimed as long as no third parties attend. If the event is only for directors, the VAT is not reclaimable.

From an income tax and corporation tax perspective, expenses have to be wholly and exclusively for the benefit of the business, otherwise they are disallowed. If such expenses relate to non-staff entertainment they are not allowable.

Gifts are strange, if they relate to some charitable or noble cause then they can be allowable. If it’s taking a client to the races, you have no chance.

Generally alcohol, cigarettes and music are not covered at all, including for staff, so give them a very wide berth. That includes a case of wine for the Chairman, who might then be taxed as a benefit in kind on their P11D or P9D.

NB:

P11D or P9D are end of tax year returns of expenses paid to employees and directors. Companies can get a dispensation from HMRC in some circumstances, see separate blog on this topic.