Entertaining is categorized as business entertainment and therefore the cost isn’t tax deductible. There is an exception to this rule as staff entertainment can be tax deductible.
The cost of entertaining staff includes costs relating to the director shareholders. HMRC extends this to all business owners, ie business partners and sole traders, who take part in staff entertainment.
There are certain rules which have to be followed to be able to claim the whole cost as tax deductible:
- The entertainment/event would occur annually, eg Christmas party or a summer event or both.
- All employees must be invited (or all those that work at the company branch or department).
- The cost per employee is no more than £150 (including VAT) per year. The £150 is doubled where the employee brings a guest.
If the cost goes over by £1 then the whole amount is a benefit in kind, so tread carefully.
There is an alternative to the above, benefits in kind for an employee are tax and NI exempt if they cost no more than £50 per head (be sure to take in account all the costs of providing it).
Wanting to entertain your customers where you have the right to claim the relief, organise a marketing event in a venue, have a presentation (you could highlight a change in HMRC’s legislation regarding the entertainment approach), you could get a speaker and you could if you wanted, treat the attendees with refreshments and beers etc served at the back of the venue afterwards.
Doing the above makes the entertainment one element of your marketing strategy rather than the sole driver, but overall it gives you the right to claim relief on the event’s expenses