Just who are you entertaining? (Tax tip regarding entertaining customers vs employees)

25 March 2009

It is common knowledge that entertaining expenditure is not allowed for tax purposes, whether income tax in the case of a sole trader or partnership or corporation tax for a company. This does not apply, however, where the entertaining is for the benefit of employees rather than customers.

Providing the expenditure is incurred wholly and exclusively for the purpose of the business (and is not incidental to the entertainment of customers) then the cost will be fully allowed against tax.

Furthermore, providing the cost does not exceed £150 per head per annum, no taxable benefit arises for the employee if the event is open to the staff generally.

The icing on the cake is that the input VAT is also reclaimable.

The detailed rules are complex and we would strongly recommend you talk to us before embarking on such an exercise.