Why Business Entertainment Expenses Are Not Tax-Deductible

Many businesses utilise various forms of business entertainment, such as shared meals, sporting events, or gifts for clients, to build better relationships and promote their services. While these activities may seem like a justified part of running a business, there are specific rules that limit the ability to deduct these expenses from tax.

What is business entertainment? Business entertainment refers to the various forms of hospitality that businesses offer to clients or potential clients as a means to promote their business activities. These can include shared meals, tickets to cultural or sporting events, club memberships, or gifts for clients.

Business entertainment includes diverse forms of hospitality offered to clients or potential clients to promote business activities. Examples include:

• Meals and drinks are provided to clients.
• Gifts for clients.
• Tickets to cultural or sporting events.
• Club memberships.

Why are entertainment expenses not deductible?

According to HMRC (Her Majesty’s Revenue and Customs) regulations, business entertainment expenses cannot be counted as deductible business expenses. This means:

• They cannot be deducted from profit before calculating income tax.
• VAT cannot be reclaimed on these expenses, as they are always treated as 0% VAT.

Exceptions to the rule

While it’s true that most business entertainment expenses are not deductible, there are exceptions that can provide a glimmer of hope. For instance, promotional gifts valued at £50 per person (excluding food, beverages, or gift vouchers) can be deducted, provided they bear the company’s logo and are intended for promotional purposes. To delve deeper into these exceptions and the regulations surrounding other types of business expenses, refer LINK

The purpose of business entertainment

The fundamental aim of business entertainment expenses is to foster client relationships and bolster the business. While these costs may not be deductible as business expenses, they unequivocally affirm their connection to the company’s operational activities and not personal expenses, providing a reassuring perspective.

Summary

Grasping the intricacies of what qualifies as a tax-deductible expense in the realm of business entertainment is a pivotal aspect of sound financial management for any company. While these expenses may not directly alleviate tax liability, they can play a significant role in cultivating valuable business relationships, which can yield substantial benefits in the long run.

Do you have questions on how to properly manage business entertainment expenses? Contact us! We offer advice on financial management and tax accounting that can help your business at every stage.