Entertainment in business
Most business 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 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 entertainment and Gifts to employee .
These are allowable accounting and tax expense when certain conditions are met.
The reason for allowing these expenses is because it directly relates to the member of staffs 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 on Gifts and entertainment.
- The gift offered to the employee must not be cash or cash voucher.
- The cost of the gift must not exceed £50 for each employee.
- The gift offered to the employee must not be provided as 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.
Client entertainment is an allowable expense for accounting purpose but the disallowable expense for tax purpose.
This expense is disallowed because the business has not incured this expense wholly and exclusively for the purpose of business.
The conditions are as follow
- The total cost of the gift to the same person in the same period is not more than £50.
- The gift given to 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 on Client and Staff entertainment.
The business could restructure their gifts to meet the conditions above and avoid spending a lot on client entertainment if possible.