Are there tax advantages on Entertaining Staff and Clients?
Client Entertainment
There seem to be a general misconception regarding rules surrounding a simple occurrence like for example taking a client for a meal or providing meals/entertaining staff.
The questions arising are:
– Is this a business expense?
– Is a tax-deductible business expense?
This article is to help you make that distinction.
As a rule of thumb, whether your business pays for light lunch with a customer or tickets for them to go to a sporting event, it is categorised as business entertainment and therefore the cost is not allowable as a business expense.
Staff Entertainment
The exception to this general rule is staff entertainment, although it is not as generous as it seems.
As an employer providing meals for your employees, you have certain tax, National Insurance and reporting obligations.
What you have to report and pay depends on:
• the value of the meals
• if they’re in a workplace canteen open to all staff
• if they take place on or off your premises
• if they’re paid for through employee ‘accounts’ or vouchers
You don’t have to report anything to HMRC or pay tax and National Insurance if you offer all your employees:
• free or subsidised meals of a reasonable value at a workplace canteen
• vouchers that cover the cost of buying these meals
A tax deduction for the cost of staff entertainment includes cost relating to directors and shareholders of the company. By concession HMRC extends this rule to all business owners for example business partners and sole traders, who take part in staff entertainment.
The cost of staff entertainment are both tax deductible for you as a business owner and tax free for your employees where the following conditions are met:
• The event occurs annually, e.g. a summer or Christmas party
• The cost to your per year per employee is no more than £150 including VAT. The £150 is doubled where the employee brings a guest; and
• All employees (or all those at one branch or department) are invited
Example
ABC Ltd puts on a summer barbecue for customers and suppliers. All Staff from head office are invited to help host the event. The caterers provide all the equipment and servers at £45 per head. In addition, there are overhead costs such as table and chair hire and the free bar. These can’t be specifically attributed to employees and so the exemption can’t apply to them. However, the £45 cost per employee is within the exempt amount. So not only can ABC Ltd claim tax deduction for the cost of entertaining its employees but they won’t be taxed. Where possible best solution is to have the cost expressed as per head.
Trivial Benefits
There are some other benefits in kind provided for an employee are tax and NI exempt if the following is ruled out:
• Can not exceed £50 per head
• It is not Cash or Cash Voucher
• It is not rewarded for work performance
• It is not part of contractual agreement
• It is not work related
• Awarded when employee hits the target
Benefits in kind for an employee are tax and NI exempt if they cost you, the employer no more than £50 per head, taking account of all the cost providing it.
While your business gets a tax deduction, your staff might be taxable on the value of the entertainment as a benefit in kind (unless one of the special exemptions apply).
Your business will have to pay Class 1A National Insurance on the taxable amount. Plus, the cost will increase further if, as the norm, your business meets the tax payable on the benefit in kind.
Contact us by using our contact page or by phone to discuss how to maximise expenses in your business.
Greenlight Accountancy Team 😊
