Over the festive period, most businesses will have enjoyed some time out with their employees at Christmas parties. Often, such events can also involve entertaining customers and suppliers. However, there can be some confusion when it comes to claiming VAT and Corporation Tax (CT) relief on business entertaining.
“Business entertaining” covers food and drink, accommodation, tickets to events, such as the theatre, concerts or sports matches, as well as business gifts. In the right circumstances, tax relief can be claimed. But there are some general rules you need to abide by to ensure that your business stays within the confines of HMRC legislation.
Here is a summary of when you can claim tax relief:
Customers – you cannot claim VAT or receive CT relief when entertaining customers/clients.
Suppliers – you cannot claim VAT but, in some instances, you can get CT relief. For example, if you are holding a marketing event and then invite suppliers and contractors to attend, you can claim relief on the cost of the event. You cannot claim CT relief for entertaining contractors or suppliers.
Employees – you can claim VAT back on the attendance cost at a rate of £150 per head including VAT, as well as CT relief. However, it is worth noting that this only covers those who are employed and currently on your payroll. You cannot claim tax relief on costs relating to entertaining ex-employees, who may have only recently left the business, or any sub-contractors.
If you are a director, then you can usually only reclaim VAT on expenses relating to a business trip away from your usual place of work. However, HMRC notes one exception:
“…where directors and partners of the business attend staff parties together with other employees, we accept that the tax is input tax and is not blocked from recovery.”
Gov.uk
If you are a partner, or your business is an LLP, then you cannot claim CT relief or VAT, as there is no legal difference between you and your business.
Mixed parties – if you have entertained a group of people split between employees, their friends and partners, and/or customers, you can only reclaim the portion of VAT relating to the cost of your employees’ entertainment.
Attending networking events – this is deemed as an allowable business expense, so you can claim both VAT and CT relief. Networking is considered a form of advertising, as well as a way to build valuable business relationships. As long as there is full clarity that the event is solely for promoting your business, products or services, this should not present any problems.
Trivial Benefits
Also, you can gift employees trivial benefits that they won’t pay tax on. To qualify it must cost you less than £50 per employee to provide, it’s not in the form of cash or a cash voucher, it’s not a reward for work performance and the benefit is not stipulated in the terms of an employment contract. Note that if the £50 limit is breached in a single transaction then it becomes taxable.
Employees can receive more than one trivial benefit in a tax year. However, directors of a close company are limited to £300 per year.
Examples of trivial benefits would include:
- Taking employees out for a birthday meal
- Buying each employee a Christmas present
- Buying flowers for the birth of their child
Whether VAT can be reclaimed on these items would depend on what has been purchased under normal VAT rules. In reality, there are very few occasions where VAT could be reclaimed.
If you need more advice on what tax relief you can claim for business entertaining, then please get in touch by emailing: accountants@charnwoodaccountants.co.uk