As the festivities are nearly upon us, you will probably start making plans for entertaining your clients and team members. You may even be thinking about what gifts you can get for them to show your appreciation. There’s some important things to remember if you want to ensure that these expenses are tax deductible.
Entertainment
The term entertainment can refer to entertaining your clients or your employees. The rules set out by HMRC are that you can spend up to £150 per person per year on entertaining your staff members. You can use this amount over separate occasions throughout the year, but the value must not exceed more than £150 per head in total. If you exceed this budget then you will not be able to class any of it as a tax deductible expense. An employee must be on your payroll to be included in these rules, they cannot be a freelancer or subcontractor.
Entertaining clients is where most businesses believe that they can spend money and class it as tax deductible, but unfortunately this is not the case. HMRC states that the entertainment of clients, existing or potential is not a tax deductible expense. If you choose to claim these expenses against your tax and get investigated further down the line then it will result in fines from HMRC.
If you choose to host an event which is for both employees and your clients then the cost needs to be split out correctly. The amount you spend on your clients is not tax deductible whereas the amount you spend on your employees is.
Gifts
If you’re thinking of showing your appreciation to your clients for their support and your employees this year then read on. If you want the cost of these gifts to be tax deductible then you can’t spend more than £50 per person. If you do, the whole gift cannot be offset against your tax. For example, if you spend £51 then you can’t class the gift as a tax deductible expense. Many people believe you can just claim back the £50 but that’s simply not the case. £50 is the limit and must not be exceeded at all if you wish to claim it as a tax deductible expense.
Gifts for your employees can be in the form of a bottle of wine, a small box of chocolates or a voucher, but not cash. If you’re on the payroll you can buy yourself something for up to the value of £50 too!
You can spend the same on your clients however, the item must be branded with your logo and must not contain alcohol, tobacco, food or vouchers.
Keeping all of this in mind when planning out your Christmas celebrations is vital to ensure you’re spending wisely and avoiding unnecessary fines later down the line if the tax man comes knocking on your door.
Hope we’ve clarified what you can and can’t claim for as tax deductible expenses in the lead up to Christmas as we know HMRC don’t make it easy to understand. If you’re still unclear about anything then please get in touch. It’s better to ask and be sure than make a mistake you later regret.
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