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
