Christmas is just over 3 weeks away and the start of the busy social season with clients and staff is upon us. Your guide to claiming entertainment tax efficiently through your business – the do’s and don’ts and everything in between.
Can I claim the staff christmas party as a business expense?
If you are entertaining staff over the festive period then good news! You can claim entertaining expenses and any VAT incurred for your employees.
Just to be clear, the taxman’s (aka HMRC) definition of an ’employee’ is someone who is on your business’ payroll and being paid a salary.
This does means that does not include shareholders of a company or subcontractors.
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, sorry, you do not count either as an employee of your business.
I am Director of my limited company, am I considered an employee of my business?
This is where the tax law is a little more complex, so read on.
If there is business entertaining between directors of a limited company, this does not qualify for tax relief.
However, if you are a director and 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, including both entertaining and travel and meals.
The same rules apply for all employees in a company, including sole traders, partners and subcontractors.
So with the festive season upon us, we recommend you arrange your Christmas celebrations away from the office or normal place of work to take advantage of this valuable annual tax relief.
Although entertainment expenses per se 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.
Be careful and use your common sense here. Any expenses you do process through your company must be genuine and considered not ‘excessive’. Taking a prospective client for a £500 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 business expenses can I claim when I’m entertaining?
Here is a list of expenses you can claim which is by no means exhaustive, but gives you a good idea of the lay of the land to make sure you stay on the right side of the tax man:
- Subsistence ie. food and drink
- Event tickets i.e. sports games or theatre shows
- Use of company’s capital assets, i.e. yachts and aircraft
- payments made to third party party planners
- Giving away of free samples
- Business related gifts
- Company director entertainment but only outwith the office
Claiming expenses on your tax return
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Written by Shaima Todd