That’s Entertainment! but can I claim a tax deduction or VAT refund? Reply

What is Business Entertainment

Entertainment is defined as hospitality of any kind, the following are examples:

  • provision of food and drink
  • provision of accommodation (such as in hotels)
  • provision of theatre and concert tickets
  • entry to sporting events and facilities
  • entry to clubs and nightclubs
  • use of capital assets such as yachts and aircraft for the purpose of entertaining
  • Gifts BIM45065

Is it tax deductible?

No its not, Entertainment is not tax deductible

Hospitality by definition is giving something for free.

So if its a ‘Quid pro quo’ where you have to give something in exchange its not hospitality its a trade and would therefore be tax deductible. This also applies if you are contractually obliged to provide the entertainment for example Celtic Football Club were contractually obliged to pay the visiting opponents board and lodging under UEFA rules. Another similar case was Kilroy Television Co Ltd who provided food and train travel to participants in their programs.

Also of interest is the case of Merlin Scientific LLP v HMRC [2015] TC04441 they supplied corporate meeting facilities but the supply was considered a minimal amount of a composite supply.

What about staff entertainment?

Staff entertainment is allowable BIM45033

Staff entertaining is allowable, so long as it is wholly and exclusively for the purposes of the trade and is not merely incidental to entertainment which is provided for customers (see BIM45034). For more information on how to establish the purpose of expenditure, see BIM37050.

Where an employer provides a staff Christmas party, or a sporting event which is open only to employees, the expenditure is not disallowed by the legislation. However, it is still necessary to establish that the expenditure is wholly and exclusively for the purpose of the business.

In practice, the definition of ‘employees’ is extended to include retired members of staff and the partners of existing and past employees. 

You might find these blogs helpful

Let’s have a Virtual Tax Free Party « Steve J Bicknell Tel 01202 025252

Will the Christmas Party be tax free? « Steve J Bicknell Tel 01202 025252

It’s time for a Tax and NI free Trivial Benefit « Steve J Bicknell Tel 01202 025252

Will I be taxed on Christmas gifts recieved at work? « Steve J Bicknell Tel 01202 025252

How to have a tax free Christmas « Steve J Bicknell Tel 01202 025252

Can I have a Tax Free Lunch? « Steve J Bicknell Tel 01202 025252

What about VAT?

You cannot recover input tax incurred on the provision of business entertainment expenses. VAT Notice 700/65

2.5 Subsistence expenses for employees working away from their normal place of business

These are not covered by the business entertainment rules because they are not business entertainment.

Meetings

If normal basic food and refreshments such as sandwiches and soft drinks are provided in your office during a meeting to enable the meeting to proceed without interruption, then a private use charge will not apply.

If there is no other alternative than to hold a meeting outside the office, only similar basic provisions would be allowable. Hospitality provided following a meeting will not meet the strict business purpose test and neither will hospitality involving the provision of alcohol. Taking a customer to a restaurant is very likely to lead to a private use charge.

Corporate hospitality events

Many businesses offer their customers or potential customers general entertainment and hospitality. Examples include:

  • golf days
  • track days
  • trips to sporting events
  • evening meals
  • trips to nightclubs

Where the related expenditure is incurred for the purpose of the business, and recovered, an output tax charge will be due. This is because such events are unlikely to have a strict business purpose or are necessary for the business to make its supplies.

3. Employee entertainment

3.1 Overview of employee entertainment

Where an employer provides entertainment for the benefit of employees for example to reward them for good work or to maintain and improve staff morale, it does so wholly for business purposes.

Thus the VAT incurred on entertainment for employees for example staff parties, team building exercises, staff outings and similar events is input tax and is not blocked from recovery under the business entertainment rules.

However, there are two exceptions to the general rule. These are where:

  • entertainment is provided to directors, partners or sole proprietors of the business
  • employees act as hosts to non-employees

steve@bicknells.net

Is your act theatrical enough to have tax deductible agents fees? Reply

Las Vegas Elvis impersonator

Actors, singers, musicians, dancers and theatrical artists are permitted to make a deduction for agents fees under ITEPA 2003 S352.

But its more complicated than you might think based on recent cases…

Richard Madeley and Judy Finnegan (2006) SpC 547 it was only on appeal that the Special Commissioner agreed that their chat show was considered theatrical.

The Special Commissioners also thought that Bruce Forsyth and Ant and Dec qualified.

But that Quiz shows were borderline, for example they felt Jeremy Paxman (University Challenge) and John Humphry (Mastermind) didn’t qualify, but Anne Robinson (The Weakest Link) did qualify and Chris Tarrant (Who wants to be a Millionaire) was borderline.

So do you think the special commissioners would see your act as Theatrical?

steve@bicknells.net

No more Class 1NI for Self Employed Entertainers Reply

Entertainer

Following 18 months of extensive engagement with representatives from all fields of the entertainment industry, HMRC published on 15 May 2013 a public consultation document: ‘National Insurance and Self-Employed Entertainers’, which discussed the precise difficulties being caused by the current application of the Regulations. The consultation presented four possible options for simplifying the NICs treatment of entertainers going forwards.

The consultation ran for 12 weeks receiving 11,814 individual responses of which 99.1% supported the option of repealing the Social Security (Categorisation of Earners) Regulations in relation to the entertainers. On 23 October 2013 HMRC published a summary of the consultation responses which included the announcement of the Government’s decision to repeal these Regulations insofar as they relate to entertainers from 6 April 2014 and a first draft of the legislation implementing this.

From 6 April 2014, producers engaging entertainment performance services will not be required to deduct Class 1 NICs contributions from any payments they make to you. This includes additional use payments such as royalties. The engager will make payments to the entertainer gross of tax and NICs and the entertainer must declare these earnings as part of their normal self-employed Self-Assessment return.

Please note that this guidance does not apply if you are an entertainer on an employment contract, and receive a regular salary from your engager with tax and NICs deducted at source under the Pay As You Earn (PAYE) system.

If you engage the services of entertainers

From 6 April 2014, you will not be required to operate Class 1 NICs for the entertainers you engage. If you are currently deducting employees’ Class 1 NICs from the payments you make to your entertainers (including additional use payments such as royalties), and paying the respective employers’ Class 1 NICs on these payments, you should continue to do so up until 5 April 2014. From 6 April 2014 however you should cease to do this.

The changes will be of interest to all national broadcasters, film companies, theatre managers, independent production companies, their representative bodies and agents in the Film & TV Production Industries, Equity, individual entertainers, companies engaging entertainers, and any other interested parties.

See HMRC Brief 35/13 for more details

steve@bicknells.net