In the build up to Christmas you may be wondering what entertainment you can put on for clients and employees and what gifts you can purchase for them as tax deductible expenses. It’s understandable that it’s important to your business to reward your staff for their efforts and show your appreciation to your customers as it helps towards your client retention. This year we all have more freedom to what we had this time last year, so it’s only right that your business wants to make the most of it. 

What do we mean by the term entertainment?

The phrase ‘business entertainment’ can mean two things. It can either be entertainment for clients or entertainment for employees. HMRC only class an employee as someone who is on your payroll so this does not include freelancers or subcontractors. A client can be an existing client or a potential client.

Entertainment includes meals, tickets for events, golf days, spa days or use of business assets.

What entertainment is tax deductible?

You are allowed to spend up to £150 per head (including VAT) per annum on your staff entertainment. This can be on more than one occasion but it cannot exceed the equivalent of £150 per head. If it does exceed this amount then you won’t be able to class it as a tax deductible expense. 

Many businesses like to show clients their appreciation for the support that they have given them by taking them out for an evening, but unfortunately these expenses are not classed as tax deductible. The entertainment of clients and potential clients is a grey area that many businesses don’t quite understand and many businesses claim incorrectly which can result in fines later down the line from HMRC if you were to ever get investigated. 

What if I am hosting a joint event for both employees and clients?

If you decide to host an event for team and client collaboration then you would need to divide out the expenses which relate to employees and which relate to clients. You can still only claim tax relief for the expenses relating to your employees and not your clients. Again it’s important that you do this correctly to avoid fines.

Can I claim back the tax for gifts or vouchers given to employees?

If you’re a limited company then you can gift your employees up to £50 this also includes yourself! Unfortunately if you are a Sole Trader then this rule does not apply, sorry! The gift can be in the form of a voucher or a present, but cannot be exchanged for cash. It can include alcohol, but it cannot exceed the value of £50. If it does it will not be a tax deductible expense.

Are gifts for clients tax deductible?

You can spend up to £50 per client on a gift and it can be tax deductible providing it is branded with your logo. The gift cannot contain alcohol, tobacco, food or vouchers. Again if it exceeds £50 then the tax will be irrecoverable. 

We hope we have clarified what you can and can’t claim when it comes to tax deductions for your staff and clients in the run up to Christmas. If you’re still unsure of anything regarding what you can and can’t claim for then please just run it past us.