Entertainment in business

 Most businesses do give gifts to their employees and provide entertainment to their clients. I have explained in the blog,

The tax consequence of doing this.

  Here is the issue with business entertainment:

Entertainment in business is an allowable accounting expense when it relates to the business, however, could be disallowable for tax when computing the tax payable by the business.

For the purpose of these write up I have classified them into

• Staff entertainment and Gifts to employees.
• Client entertainment and Gifts to clients.
  

  

Staff  Gifts to employees.

These are allowable accounting and tax expenses when certain conditions are met.

The reason for allowing these expenses is because it directly relates to the member of staff hence the expense incurred is wholly and exclusively for the business.

In order to avoid paying tax on gifts to employees, they would have to meet the conditions under Trivial Benefit.

Conditions of trivial benefit.

• The gift offered to the employee must not be cash or a cash voucher.
• The cost of the gift must not exceed £50 for each employee.
• The gift offered to the employee must not be provided pursuant to the relevant salary sacrifice arrangement. The employer must not have obligations to pay the employee or include this benefit in the employer benefit packages.
• The gift offered to the employee must not be in recognition of particular services or employee rewards for services performed by the employee.

Client entertainment and Gifts to clients.

When this is made to the clients, it is an allowable expense for accounting purposes but a disallowable expense for tax purposes.

This expense is disallowed because the business has not incurred this expense wholly and exclusively for the purpose of business.

The conditions are as follows

• The total cost of the gift to the same person in the same period is not more than £50.
• The gift given to the client must bear the business name, logo, or clear advertisement.
• The gift does not include food, drink, or tobacco.

When a business has client entertainment as an expense in the account or has given gifts to clients that have not met the above conditions, the amount of the expense would be disallowed and thereby added to Net profit. The company would pay corporation tax on it even though it’s an expense.

How to save tax.

The business could restructure its gifts to meet the conditions above and avoid spending a lot on client entertainment if possible.

If you would like to read more on staff and client entertainment, Kindly click on or read our previous post on Trivial benefits.