Entertaining - am I missing something or is my client taking the mickey

Entertaining - am I missing something or is my...

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I have a couple of clients who I think are pushing their luck with entertaining but I just want to check I am not missing something.

Client A is in the entertainment business and has a small limited company; he spends quite a lot of time at his place in the south of France. He regularly tries to get me to put meals through his limited company books from the south of France where he claims he has been entertaining clients. I have explained that the VAT cannot be reclaimed and the expense is not allowable against Corporation Tax; on that basis I have told him he should put these expenses through the Directors Loan Account as the easiest and quickest way to account for them as there is no tax benefit trying to claim them and this is better  than mucking about with P11Ds etc. Is this the right approach or am I missing a better way for him to do things?

Client B puts a lot of his personal entertaining through his small limited company. Whilst staff entertaining is normally allowable for VAT and Corporation Tax as he is the Director this is not so straightforward and may not be allowable; indeed he could be assessed personally for these expenses; so again I have suggested to him that with personal entertaining he puts it through the Directors Loan Account. Again not sure if this is the best solution.

I do find these areas of entertaining quite complicated and some help re the best way to approach these kind of situations would be most helpful.

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the sea otter
By memyself-eye
22nd May 2015 09:11

I sympathise

I have one particular one man band  client for whom entertaining is (in his mind) a business expense. I have tried the approach you suggest even telling him not to put any entertaining through the company. He did not listen, now he has a enquiry into his entertaining expenses!

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By Matrix
22nd May 2015 09:23

Entertaining

If the entertaining expenses are business expenses then they can be put through the company, although you rightly say they are not allowable for corporation tax or VAT.  However if you put them through the Director's loan account then they are taxed at his marginal rate of tax so there is a saving to putting them through the business should they be actual business expenses and he is a higher rate taxpayer.

Staff entertaining (so only employees are present) is allowable for tax and the VAT is reclaimable but there is a P11D benefit (or the company could enter into a PAYE settlement agreement to bear NI and income tax) unless it is an annual event such as a Xmas meal, max allowable amount is £150 per employee.

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By andy.partridge
22nd May 2015 09:37

Categorise

You have a soup of expenses. Try to categorise them and account for them accordingly:

a) business expenses that are tax deductible

b) business expenses that are not tax deductible

c) personal expenses

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By levelheaded1903
22nd May 2015 10:29

I have come across a similar situation, and as mentioned above, the company applied for a PAYE settlement agreement, which was accepted by HMRC. I used to spend a huge amount of time trying to clarify exactly what the business "entertainment" was, and now, whilst book keeping, I can extract the detail I need for the PSA. As you say, it becomes very complicated and at least with a PSA you know you are keeping on the right side of HMRC!

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By ireallyshouldknowthisbut
22nd May 2015 10:48

.

I have a client who was putting through a lot of lunchtime meals in London, clearly for two or more persons but always "meeting key contacts and trying to get work".  Then he started staying over in the London several nights a week, despite being around 90 minutes travel time from the marital home.  He came up with all sorts of excuses about late finishes and early starts (I did mention shorter lunches might be in order).

 And then he left his wife (or possibly thrown out) and all these costs stopped.

"fancy that" as private eye might say. 

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By arthurallan
23rd May 2015 07:26

Would it be correct to say business expense (ie customers and suppliers) is allowable if it is subsistence (hotel and meals etc) but disallowable if it is just meals etc with customers and suppliers.

If it is disallowable but the client is a basic rate tax payer then there is no advantage in putting through the business so it might as well go through the DLA; if he is a higher rate tax payer there is an advantage to putting it through the business.

For staff entertaining it is allowable for VAT and CT but the Director would be hit with income tax and NI through the P11D; would this still make it advantageous then to put it through the books as an expense rather than via the DLA? A PAYE settlement agreement would be a real pain for a one man limited company and would there be any advantage?

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