Author: Chris Neame BFP FCA CA(ANZ)
Introduction
Navigating the complexities of business expenses, particularly entertainment expenditure, can be challenging for UK limited company owners. This FAQ guide clarifies common questions regarding entertainment expenses, assisting you in making informed decisions and adhering to HMRC guidelines.
Defining Entertainment Expenditure
Q: What constitutes entertainment expenditure for a UK limited company?
A: Entertainment expenditure includes costs related to entertaining clients, potential clients, or employees, such as meals, events, tickets to shows or sports games. These are generally incurred in the pursuit of maintaining or fostering business relationships.
Tax Deductibility of Entertainment Expenses
Q: Are entertainment expenses tax-deductible?
A: The deductibility of entertainment expenses varies:
- Client Entertainment: Expenses for entertaining clients or potential clients are not tax-deductible.
- Employee Entertainment: If entertainment benefits employees and meets certain criteria, it may be considered tax-deductible.
Examples of Deductible and Non-Deductible Expenses
Q: Can you provide examples of what is and isn’t tax-deductible?
A:
Tax-Deductible:
- Annual staff party or similar events open to all employees, costing less than £150 per head.
- Team building events primarily for employee benefit and not overly extravagant.
Non-Tax-Deductible:
- Meals or events with clients where the primary purpose is business discussion.
- Entertainment events for potential clients without any direct employee benefit.
HMRC’s Stance on Entertainment Expenses
Q: How does HMRC view entertainment expenses?
A: HMRC is stringent with entertainment expenses, only allowing deductions if they are wholly and exclusively for business purposes. Detailed scrutiny is applied to ensure expenses meet the criteria for allowable deductions.
Record-Keeping for Entertainment Expenses
Q: What records should I keep for entertainment expenses?
A: Maintain detailed records, including the date, location, purpose of the entertainment, attendees and their relationship to the business, and receipts outlining the cost.
Allowances for Small Gifts
Q: Are small gifts to clients allowable?
A: Small gifts costing £50 or less per client annually are allowable if they advertise the company and are not food, drink, tobacco, or exchangeable vouchers.
Mistaken Claims
Q: What if I mistakenly claim for non-deductible entertainment expenses?
A: HMRC may require repayment of tax relief claimed on such expenses, potentially with additional penalties or interest. It’s vital to seek advice if unsure about the deductibility of specific expenses.
Ensuring Compliance
Q: How can I ensure compliance with entertainment expenditure rules?
A: To ensure compliance, keep accurate records, understand the rules regarding entertainment expenses, and consult a tax professional for advice tailored to your business’s specific circumstances.
Conclusion
By staying informed and consulting with experts, UK limited company owners can navigate entertainment expenditure rules with confidence, ensuring compliance with HMRC guidelines.
For any further queries, please don’t hesitate to reach out via our Client Services email. We’re here to help!
About Neame & Co
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