When you are in the UK and associated with the industry, you must have heard about entertaining business clients and how beneficial that can be. This brings in the factor of improved morale and showing loyalty towards your dedication to work with clients. You will get a chance to build business relationships. This is where you stand out among your competitors. However, people often enquire about whether client entertainment is tax-deductible or not, with different other queries. The first need is to gather information about what exactly qualifies as an entertainment expense in the business world or what can be claimed as a tax relief.
In this comprehensive guide, we have compiled the answers to your frequently asked questions about client entertainment. This involves the discussion of what counts as client entertainment in the business, what is tax relief in this regard, is client entertainment tax-deductible, reclaiming VAT on overseas business entertainment, and why the professionals advise paying for the client’s entertainment. Let us get delved into the discussion further for a better understanding.
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What Counts as Client Entertainment Tax in the Business World?
As per the instructions of HMRC, the factors that we can count as the client’s entertainment are possible eating, drinking, tickets to the event, accommodation, and other activities that come under hospitality. This explains that there are serval types of client entertainment. These are outlined below for you:
- There is non-business entertainment for business clients. This includes business acquaintance of clients for the purpose of social affairs.
- Then comes the type of client entertainment that is known as business entertainment. This involves the formation of business connections, maintenance of business relationships, and discussion of business projects with relevant clients.
Moreover, there comes the need of asking what is to be paid and what is to be reported. Well, this depends on the client’s entertainment type that you are following. Who will attend the benefit and who will arrange this will also be considered as part of details. The set of rules designed for this purpose has to be followed.
Tax Relief on Client Entertaining
This is imperative to be aware that while you are taking your clients out, always pay from your business account rather than spending from your personal accounts. Otherwise, this will not be considered an allowable or deductible expense under the corporation tax rules. This way you will be able to save the income tax. You will end up bearing the cost of entertainment activities personally. No one will like to bear such a cost of clients’ expenses. This will bring in a loss for the business.
Is Client Entertainment Tax Deductible in the UK?
This is a common perspective that client entertainment expenses are not tax deductible. This can be explained further in a way that you will have to add the expenses into your profits while you are planning to make calculations of the corporation tax. This will not even allow you to claim any VAT on such expenses. Rules implication will remain the same whether you are in a discussion over a coffee meeting with the clients or taking out a prospective customer to a business meeting for dinner.
Moreover, there is a possibility to make this expense tax efficient. As mentioned earlier, always pay for such expenses from the business account and do not pay from your personal account. This will help you to play smart in the case of being tax efficient.
Why is it Advised to Pay for Client Entertainment?
Now that you know that client entertainment expenses are not considered to be the allowable expenses as per the rules of HMRC, the professionals suggest paying for the entertainment. For example, if you are on a dinner with a potential client, always make sure your business account pays for the meal expenses. If you choose to pay with your personal account, the tax liability will go higher and you will be at a loss clearly.
Reclaiming VAT on Overseas Business Entertaining
In a nutshell, there is no possibility to claim VAT when it comes to the case of client entertainment. However, the case of overseas customers is totally different. This becomes a little complicated because of the changing of rules from one scenario to another. As per HMRC, the expenses of overseas client entertainment are recoverable. However, it has to be wholly and exclusively for business purposes. This is also imperative to mention here that overseas contractors and suppliers of entertainment do not come under this category of exception.
The Bottom Line
The common perspective according to the rule of HMRC is that clients’ entertainment expenses are not allowable and you will not be able to receive them. However, there are a few exceptions in the set of rules when it comes to clients overseas. The cost involved in overseas client business meetings and other factors of entertainment can be deductible. You will have to provide evidence of the meeting is related to business purposes purely. Ensure to keep the pieces of evidence intact in order to get through the process successfully. We hope these few minutes of reading have helped you to develop a better understanding of client entertainment tax deductible and how it is beneficial in the UK.
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Disclaimer: All the information provided in this article on client entertainment tax deductible in the UK, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.