Accounting for entertainment : Trickier than the offside rule

Our AGM sponsors Hilton Sharp & Clarke discuss how to navigate the tricky topic of entertainment tax. 

Business entertainment

Client entertainment.  Corporate hospitality.  Working lunch.  There are many different terms to describe it, but it all boils down to the same thing… letting your clients know that you appreciate their business.

Unfortunately, HMRC doesn’t tend to allow it as an expense.  This includes obvious entertainment, such as tickets to sporting events, as well as the loosely defined “hospitality”, which includes most food and drink.

So, next time you’re thinking about adding “Round of drinks for the entire conference” to your expenses, remember that there may be an extra cost to consider.

Staff entertainment

Providing your employees with benefits other than salary can be a great way to improve morale and performance, as well as showing that you value them.

The good news is that staff entertainment differs from client entertainment in that it is fully allowable for tax. Staff Christmas parties or, for example, trips to sporting events can be included as expenses, thus reducing your corporation tax bill.  The only stipulations are that you can only provide the entertainment to your staff and their partners (although retired staff can also attend), the entertainment must be an annual event that is open to all staff, and the expenditure must be wholly and exclusively for the purpose of the business.

However, if the cost of such events exceeds the annual limit (currently £150 per person), then your employees could be hit with a tax charge… putting a bit of a dent in that supposed morale boost, perhaps!

Employee benefits

Giving staff the use of company season tickets is a popular “Employee of the Month” reward.  However, as with all benefits, it is important to make sure that this is properly reported, either through your payroll system or via a P11D submission.  Alternatively, you could consider arranging a PAYE Settlement Agreement, allowing the business to cover the employees’ tax bills for such benefits.

Avoiding an own goal

Whatever approach you use, it’s vital that you account for it correctly and ensure everything is reported to HMRC properly, or you and your staff could end up with unexpected tax to pay.

This is where talking to your accountant can really help.  They will be able to advise you on the most cost effective ways to reward your customers and your staff, as well as potentially reducing the amount of administration you need to have in place, such as by using a salary sacrifice scheme to put all your benefits through your existing payroll system.

If you have any questions about the topics in this article or would like help setting up an employee benefits scheme, please contact Hilton Sharp & Clarke on  01273 324163 or at gemmag@hsc.uk.net.

Thanks to Hilton Sharp & Clarke for writing this blog.

If you want to contribute to the Chamber blog, contact us on hannah@brightonchamber.co.uk