Advice from Bambridge Accountants London.
With the 2019-20 tax filing season fast approaching, now is the ideal time to start identifying what business expenses you have been overlooking or over claiming, in prior years, on your tax return. This article will focus on the key facts that you must know when looking to claim entertainment expenses on your UK tax return.
Entertainment expenses and the creative industry
As accountants to the creative industry, a large portion of our client base incurs high entertainment costs due to the high demand for industry networking. Business entertaining when you are self-employed or a small business can be crucial to business developments, helping professionals establish and grow business relationships. Unfortunately, the expense of entertainment is not the simplest area when looking to claim it back on your tax return.
Often in client meetings, we are faced with countless questions as to where the HMRC stands in terms of entertainments costs as a claimable expense.
Can I claim for meetings with clients at restaurants?
Are the drinks I paid for with my agent during a business meeting claimable?
I brought a prospective screen writer to a sporting event is that allowable?
There are a number of variables that will decide the answer to these questions.
Subsistence VS Entertaining
One of the common confusions we are often met with in our client consultations is when a client believes an expense serves the purpose of subsistence, but would actually be classed by the HMRC as entertainment.
To offer insight into entertainment expenses in practice, below are some examples:
1) Taking some clients out for lunch near your home base. As there is no allowable travel involved and therefore no demand for subsistence, the expense would be classed as entertainment.
2) Paying for a meal for yourself and a subcontractor who works for you while staying away on a work trip.
What this expense will be classed under depends on the purpose of the business trip. If the trips main purpose was for business, you can claim your own meal as a subsistence expense. However the subcontractor would be classed as entertaining and would not be allowable against tax.
If you are a sole trader you are not entitled to claim the costs of entertaining clients, suppliers or customer against tax
There are some cases where a limited company may, however, be able to claim entertainment as an expense.
Entertaining staff
The expenses incurred through entertaining payroll staff, as long as reasonable, are claimable against tax. In order for work events, such as Christmas party's, to be eligible to be claimed against tax, the events must be open to all employees within the company. The claimable spend limit per employee is £150 per in total throughout the tax year.
It must be noted that the £150 is a limit, not an allowance. If the company were to exceed £150 per person, the entire amount becomes a taxable benefit for employees.
A limited company director, on the payroll can claim expenses also if they have other non-director staff. Directors with no other employees and sole traders cannot entertain themselves, even at Christmas! Entertaining yourself is not allowed if you are a sole trader because you are not an employee of the business, you are the business.
What is business entertainment?
According to the HMRC, business entertainment is the act of providing hospitality and entertainment to customers or potential customers. A common example of business entertainment is food and drink.
Below is are some more examples the HMRC offers:
provision of accommodation (such as in hotels)
provision of theatre and concert tickets
entry to sporting events and facilities
entry to clubs and nightclubs
use of capital assets such as yachts and aircraft for the purpose of entertaining
Claiming business gifts as an expense
Lower value gifts such as Christmas cards can often be expensed. Small promotional gifts with a value below £50 are often allowable also. It is important to note, however, that the gifts must carry a clear advertisement for the business i.e. have the logo stamped on it. The gift itself must include this branding, not only the wrapping.
Gifts that are not allowable include:
Alcohol
Food
Drink
Tobacco
Vouchers
If your business specialises in one of the products mentioned above, the tax ruling is likely to vary.
Contact us for expert advice on how to save money against tax