Employers who cover the costs of their employees providing entertainment for clients have certain tax, National Insurance and reporting obligations.
Here are some of the things you need to know:
Tax Deduction in Business Accounts
However, staff entertaining which is not treated as ‘entertaining’ for tax purposes will be an allowable expense.
- Business purposes – HMRC will accept that there is no taxable benefit for the employee.
- Non-business purposes – There will be a taxable benefit but the cost should be reported on form P11D. As ‘entertaining’, there would be no deduction in the employers’ accounts. However, as a staff benefit, the employer should be entitled to a tax deduction.
Pitfalls and Planning Points
Room Hire at Events
- Input VAT is recoverable on the cost of an annual staff party or function as long as all the directors and employees are invited.
- Input VAT is not recoverable on the cost of entertaining UK clients.
- If an event serves to entertain clients and staff, you have to disallow a proportion of input VAT based on the ratio of clients to staff.
- If an event is held to entertain customers, and staff are there to look after the customers, the whole event is regarded as ‘entertaining’ so input tax cannot be recovered.
- If the event is mainly for marketing, the portion of cost incurred for entertainment should be disallowed.
Overseas customers and VAT
- A VAT registered business may reclaim input VAT on the cost of entertaining an overseas customer as long as it is on a reasonable scale.
- HMRC will not allow the claim if the entertaining is part of a corporate event. This includes golf day, day at the races and trip to some other type of event.