Everyone is hoping that the Government’s road map progresses to plan. If so, all coronavirus-related restrictions cease from 21 June 2021. Businesses are keen to re-energise key relationships. Many will take clients out to lunch. It’s a nice gesture, certainly. But make sure you understand the tax implications of corporate entertaining.
Potential tax implications of corporate entertaining
Video meetings are useful. Yet, nothing beats seeing potential suppliers and clients face-to-face. Corporate entertaining helps to maintain and strengthen important connections. However, get it wrong and you face a tax issue.
Typically, corporate entertaining is a non-deductible expense for Corporation Tax purposes. Equally, VAT is not recoverable. But take care to follow the rules. HM Revenue & Customs (HMRC) could check up. Mistakes tend to prove costly.
Potentially, HMRC could determine that expenses are treated as private entertaining. If this happens, both the company and the individuals involved will receive an unwelcome tax bill.
There is no monetary limit to how much business entertaining you do. That said, HMRC has the right to question it. This usually happens if it considers the amount is excessive.
Always keep records
Whatever your plans for corporate entertaining, you must keep records. As a minimum, record the following details:
- How much did you spend?
- The nature of the entertainment
- Who attended the event?
- Why did you entertain these customers?
Tax implications of corporate entertaining
Now, let’s look at some examples.
Business lunch or dinner
Teresa Smith, a director of Company A, arranges a dinner. She invites Melissa Jones, the director of Company B. The aim? To strengthen their business relationship in the aftermath of Covid-19. And to discuss potential new contracts. Teresa also organises transport to and from the restaurant. What are the tax implications? Teresa treats all restaurant and transport costs as business entertainment.
Company X launches a new product. It wants to tell potential customers. The business therefore organises a golf day. It also hires a hospitality box at a sporting event. Clearly, the costs involved could escalate. Therefore, for audit purposes, keep records. Invite customers and receive acceptances by email. Also, be clear which staff are involved. HMRC may ask you to explain. For example, it’s obvious that sales staff should attend. However, say you want the production manager to join you. This is because he’s best qualified to answer technical questions. It’s a valid reason for him to be there.
Asking spouses or partners along
Can spouses or partners accompany you? It’s a common question. So, what are the tax implications of corporate entertaining in this respect? A partner/spouse’s expenses may be allowable for tax purposes. Much will depend on the circumstances. In particular, does the entertaining take place at your home or another venue?
Entertaining at or away from home?
If it is in your home any costs attributable to your partner/spouse are automatically included. But not those of any other family members. It’s different if entertaining outside the home. You may have to demonstrate your partner/spouse’s presence was essential to the purpose of the entertainment. For instance, they are a linguist and can act as an interpreter. Again, keep records to support the tax deduction or exemption.
Evidently, this is a complex area. For help understanding the tax implications of corporate entertaining, contact us on 01785 243276.