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What is considered entertainment?
In order to easily identify entertainment expenses we have provided a list of rules as featured on the HMRC website. Entertainment is defined as any one of the following:
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.
As long as the entertainment is provided for no charge to non-employees, it is business entertainment.
Who counts as a client?
A client can be anyone who is ‘not an employee of your business’; according to HMRC this can include:
pensioners and former employees
job applicants and interviewees, and
shareholders (who are not also employees)
Of course there are some exceptions: self-employed contractors who receive similar subsistence benefits to your employees can also be treated as employees along with temporary or casual staff.
What can I claim back?
Now that you are sure your expenses fit all of the criteria and can be defined as client entertainment we can address the question: what can I claim back?
While VAT incurred can usually be offset against the VAT collected on behalf of HMRC, this is not the case for client entertainment expenses. ITC Contracting list the following as expenses which cannot be claimed back: ‘entertaining customers, clients or suppliers, and providing client hospitality at events.’
So, recovery on VAT is blocked, even when employees act as hosts, but there are three exceptions to the rule:
To get a more in depth understanding of client entertainment costs or if you have any questions relating to this post you can contact James Cowper Kreston on email@example.com or by filling out the form on our website.