Entertaining – What is Exempt?

Tax Free Benefits

Summer socials, business dinners and tickets to sporting events are all great ways for you to keep in touch and form close relationships with your clients, suppliers and employees. So, what is the best way for you to entertain these groups of people?

Clients and Suppliers
Unfortunately, however you entertain clients and suppliers HM Revenue and Customs (HMRC) states that you will not be able to claim tax relief. Even business dinners do not qualify, although you can reclaim your own subsistence costs. Despite this, paying for client entertainment through your company is still the most efficient way to cover the cost involved, as the alterative – withdrawing the funds to pay the costs personally – will leave you subject to income tax.

Employee Entertainment
For tax relief and VAT to be reclaimed, the purpose of your event must be to purely entertain your employees (specifically those on your payroll). If the event is solely for directors or partners, or if you are a sole trader, HMRC states that tax relief and VAT deductions will not apply. The other criteria that you must meet to guarantee that you do not have to report anything to HMRC or pay tax and National Insurance are:

  • Budget – you must ensure your spend is £150 or less per head
  • Annual event – such as a summer social or Christmas party, or you can do multiple events throughout the year, providing the cost of the combined events is still no more than £150 per head
  • Open to all of your employees – all of your employees must have the option to attend

Although entertaining employees is a great way for you to incentivise and reward your team, if you do not keep to the above criteria the entertainment costs may be considered by HMRC as a taxable Benefit in Kind (BIK) for your employees. However, in this situation all is not lost, as since 6 April 2015 employee BIK are tax exempt if they cost the business less than £50 per person. This means that you can now provide more benefits to your employees, not only can you organise a team event that costs £150 or less per person, but you can also provide your team with a BIK, without having any tax implications.