As we’ve just passed the tax year end, you’re probably wondering if you’ve taken advantage of all the tax deductible expenses you're eligible for. Entertainment and gifts are something which I get asked about a lot so this blog will guide you through what you’re entitled to claim and what you need to keep in mind when you review your taxes.
Are business entertainment tax deductible?
Throwing Christmas parties, hosting company events, or taking your team out to celebrate achievements are great ways to appreciate your staff or sustain a fun and healthy workplace environment. Many business owners will also entertain clients, taking them out for a drink or a meal to talk business or show appreciation.
Unfortunately, this is an area where a lot of businesses are not compliant with HMRC's rules.
So, which of these expenses are tax deductible?
Most business owners assume that all client entertainment is tax deductible, but I am sad to tell you that it isn’t. None of the entertainment you offer to your clients will be tax deductible, and I am afraid there’s no way around it.
On the other hand, as an employer you may spend up to £150 per head (inclusive VAT) per year, when arranging annual functions or events to entertain your staff. There can be any number of events or parties, as long as you don’t exceed the £150/head limit. For instance, you can host three parties at a cost of £50 per head, at various times during the year. It is also important to note that each event must be open to all employees.
If the total of all of the events exceed the £150 limit per person, a taxable benefit arises in respect of the whole value of events that are over £150. The £150 amount is not an allowance to be netted off the total costs. Unfortunately sub contractors and freelancers are not included.
Are gifts tax deductible?
Giving gifts to your employees can boost morale and provide motivation. And a small gesture to a client can show your appreciation for their business and that you value them. The good news is that both client gifts and employee gifts are tax deductible!
However, there are differences in what is classed as a tax deductible expense for both clients and employees.
You can spend £50 per person on client and employee gifts over a year, and you must not exceed this amount. If you spend a penny over £50 it’s no longer classed as tax deductible.
Gifts for your employees can be in the form of a bottle of wine, a small box of chocolates or avoucher, but not cash.
You can spend the same on your clients, however the item must be branded with your logo and cannot contain alcohol, tobacco, food or vouchers.
To ensure that employee gifts given don’t result as a reportable employee benefit in kind and that they are tax exempt, the following conditions must be followed:
The cost doesn’t exceed £50 per employee
The gift is not cash or a cash voucher
The gift received is not a contractual arrangement
The gift is not provided in recognition of performance of the individual
Benefits provided to directors is capped at a total of £300 per director per year
If you’re still unsure if what you’ve spent over the year is tax deductible or what you’re about to spend is allowable then it’s best to seek advice from a professional bookkeeper or accountant like ourselves.
Benefits of having a bookkeeper
Having a bookkeeper or accountant to sort out your expenses means you’ll pay the taxman less because we know exactly what you can and can’t claim for.
We offer personalised financial services so that you can save more, earn more, and grow better.
Get in touch today so we can make sure what you’re spending is compliant with HMRC and that you can take advantage of all the benefits you are eligible for.
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