As the annual sporting calendar gets underway the Rugby Six Nations is in full swing, offering business owners the opportunity to play host to current and potential clients, drumming up some new business whilst spectating at Murrayfield.
Corporate entertainment is a positive business development tool, and enables businesses trying to secure deals with other companies the opportunity to meet with potential clients in a relaxed environment.
However, just like in rugby it is important that business owner don’t take their eye off the ball when entertaining staff or clients, as it is vital that they understand which costs they can actually reclaim from their VAT registered business.
With strict guidelines, and a complex set of rules, which urge players to play by the book, HMRC determines the tax treatment of entertaining costs, providing bosses can prove there is a business benefit to reclaiming costs such as expenses.
Here, Phil Anderson, managing director of Phil Anderson Financial Services Ltd, discusses what you need to consider when entertaining clients and staff:
What is an entertainment expense?
HMRC defines entertainment expenses as those costs you incur when providing either subsidised or free hospitality to clients or staff.
Examples of entertaining staff or clients, can include food and drink, theatre or concert tickets, sporting event tickets, and the use of company assets such as executive suites. However, these are just a few examples.
Entertaining staff
If you are entertaining employees, then according to the HMRC, this is classed as ‘staff entertainment’, which allows you to reclaim the tax on any VAT you pay on entertainment purposes.
A limited company can pay for an annual event, without personal tax implications, providing the total does not exceed £150 per head. The ‘annual event’ doesn’t have to be just one event, as it can be multiple events throughout the year. For example, a summer BBQ and a Christmas party would both be covered for corporation tax, providing the total of both doesn’t exceed the £150 per head limit.
Businesses which boast standard rated tax can reclaim the costs which are applicable to staff. This means that if, for example, you have invited two members of staff and two guests, you can reclaim 50 per cent of the VAT.
It is important to make reasonable assumptions about what is and isn’t acceptable in reclaiming tax. Be sure to read up on the HMRC guidelines if you have any doubts on what staff costs you can claim back on, including expenses.
Entertaining clients
Paying to take potential and current clients out to entertain them in the hopes of generating new business can be a costly business. Although there are limitations behind what you can claim tax back on, it is still worth paying anything for the company through the company accounts, as it saves you the income tax you would otherwise be viable for when withdrawing money to fund the event paying for it personally.
When hosting an event to entertain clients, you can only reclaim the VAT or claim tax relief on staff attending the event, providing the event is a mixed staff and client event. Costs can be reclaimed on employees only, not clients. Therefore it is important to consider what events you host, and the purpose of them, as entertaining clients can prove very expensive in some cases.
Financial planning is vital when looking into entertaining both staff and clients, by having a clear financial plan in place, this makes expenditures much easier to handle, and will allow you to claim tax back on the correct individuals.
For more information on how to plan your financials please contact Phil Anderson on 01224 900879.