Taking a potential or existing customer or client out for a meal or to an event can be a great way to establish and maintain good relationships. Nicola Roby at CHW Accountants in Bolton explains what is and is not tax allowable.
What can you claim for?
If you work for a limited company, entertaining customers is not allowable for Corporation Tax purposes.
That means that although the expense may be claimed as a legitimate business expense – providing it’s reasonable and “wholly and exclusively” for business purposes – it cannot be taken off the profits of the business when it comes to completing your tax return and establishing how much tax the company owes. The same is true for other entertainment costs, for example, taking a client or customer to a football match or other event.
If you are a sole trader, the same rule apples – entertaining clients or customers cannot be claimed as an allowable expense. So, whilst your business can foot the bill the costs cannot be deducted when you or your accountant are working out how much income tax and NI is payable.
Benefits in kind (BIK)
If HMRC believes that the event or meal was for social rather than legitimate business reasons, it could be viewed as a BIK, which means you could be personally liable for tax and NI.
In all cases, it is advisable to keep a record of the date, who you entertained and why, as well as receipts. This will make any HMRC enquiry much easier to deal with and it is worth remembering that excessive entertainment costs can prompt a HMRC investigation.
If your business is VAT registered, you cannot reclaim any VAT paid on customer entertaining expenses.
Gifts to customers
There may be occasions where you wish to give a gift to a valued customer. For these to be tax deductible the value should be no more than £50 per recipient and be promotional in nature, for example the gift itself should bear your branding, not just the packaging or wrapping.
Unless it is a product your company sells, gifts should not be alcohol, food, drink or vouchers that can be exchanged for any of these. If gifts are not seen as promotional or they are worth more than £50, they will be classed as entertaining, so they will not be tax deductible. And if the gift is worth more than £50, HMRC will disallow the full cost, not just the amount over £50.
For further advice on this or any other matter related to your Small Business Accounts, contact our CHW Accountants in Bolton on 01204 534031 or via our contact us page.
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