Can Entertainment Expenses Reduce my Corporation Tax Bill?
By Cheaper Accountant, Nov 1 2019 07:00AM
It can be very tempting to spend money from your company on entertainment expenses such as dinner or drinks with clients, but the big question is does this qualify as a tax reducing expense. This blog post will address this in detail and clarify where you can gain a tax benefit.
To begin the discussion, it is worthwhile clarifying the entertainment expenses are not usually tax deductible within the UK. This means that any expenditure on entertaining that is put through the company will not qualify as a tax reducing expense and will not reduce the company profit that corporation tax is calculated on. So, in essence there will be no benefit to you from putting such expenses through your limited company, for example.
However, as with many other aspects of taxation this is not always the case and it’s not as clear cut as this. If an event is for staff only then there are circumstances where the expenditure can be classed as an employee reward, rather than entertainment, and then qualify as tax deductible expenditure.
What is Tax Deductible?
A Christmas party is a great example of this type of expenditure that can be classified as an employee reward rather than entertaining. The costs are exactly the same in nature in reality (dinner and drinks, for example) but under these circumstances they are now tax deductible.
However, the following guidance should be noted:
1. The total spend per head must not exceed £150.
2. This cannot include the entertaining of clients.
3. If there are staff and clients at the event, then only the staff related proportion of the total costs will be tax deductible.
What about VAT?
The rules here follow a similar theme and you can’t generally include entertainment expenses on your VAT return.
You may be able to add the costs of providing staff rewards and incentives such as the example provided above.
If you have any questions about tax deductions, then contact one of our cheap accountants who will be happy to provide you with further advice and guidance.