According to HMRC, ‘entertaining’ can involve eating, drinking and other hospitality which is free or subsidised. Here are a few examples of entertainment costs:
- food and drink
- free samples
- business gifts
- accommodation e.g. hotels
- sporting events and facilities
- use of capital assets, such as yachts and aircraft
- theatre and concert tickets
- entry to clubs and nightclubs
If you run a limited company and you cover the entertainment costs of a client, a supplier or anyone outside your business, then you won’t be able to reclaim any VAT on these costs. You still need to record these costs in your accounts under the ‘business entertaining’ category, but when you’re working out how much profit to pay tax on, you’ll have to make sure you add that cost back to the profit from your accounts.
If you’ve paid for food, drink or entertainment at an event for your customers and staff, you can claim the cost and VAT of entertaining your staff – but not your customers. Be prepared to divide the cost up between the entertaining clients and business travel and subsistence categories, split the VAT and only claim part of it.
If you’re a sole trader or a partner in a limited company, you are not an employee because legally there’s no difference between you and the business. Therefore you can’t claim tax relief or VAT on any entertainment costs for yourself.