Client entertainment used to be common practice, even with tax rules hampering what was and wasn’t possible. But the arrival of Covid, and restrictions on gatherings, changed the landscape significantly. Today face to face business meetings are much more infrequent, and the opportunity to gather with clients to eat, drink and be merry is rarer still.
Although many companies have reduced or limited client entertainment, it can still be an important part of relationship building, business development and fostering loyalty. But what are the rules when it comes to tax?
What is client entertainment?
When it comes to tax, what’s being looked at when considering client entertainment is any hospitality provided to clients, potential clients, suppliers, and other business contacts. This can encompass activities such as meals, drinks, event tickets, and other forms of entertainment.
What’s allowed for tax?
Any entertainment expenses which the business incurs when entertaining clients or potential clients can’t be deducted for corporation tax purposes. This includes:
- Meals and drinks provided to clients
- Tickets to events, shows, or sporting events for clients
- Travel and accommodation for clients
- Any other hospitality or gifts provided to clients
But entertaining employees, for example for the staff party, is generally deductible.
Are there any exceptions?
As is generally the case, there are some exceptions. If you hold an event where a large number of people are invited (including clients and the general public), and it’s primarily a promotional activity, some expenses may be considered as advertising and promotional costs, which could be deductible. And if you run a training course for clients that includes providing food and drink, these costs might be treated differently, especially if the primary purpose is training rather than entertainment.
Whatever the event don’t forget to keep detailed records of all entertainment expenses, including the names of those entertained and the business reason for the entertainment.
To discuss any business tax query please get in touch with our team.