An entertaining round up. by Rebecca Benneyworth

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Rebecca Benneyworth looks at ancillary costs of business entertainment, are they all disallowable?

When a company incurs entertaining expenditure what are the tax rules? Most people understand that client and customer entertaining is not allowed as a business deduction, but what about related expenditure such as travel, and what about staff entertaining, and those employees of your sister company? Does it make any difference if you split the bill?

Customers, clients and suppliers

This category includes any non staff related entertaining. Business entertaining is excluded from deduction from profits by Section 577 TA (and now also S45 ITTOIA) . This excludes deduction for business entertaining, which is defined as including hospitality of any kind, provided by the company or an e...

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02nd Jul 2007 18:14

what a great summary
just in time for my annual P11d refresh- thanks Rebecca

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By Anonymous
06th Jul 2007 08:34

Entertaining or benefit for expense fraud
We have just dismissed a senior employee for expense fraud. in addition to the fraudulent items where he claimed as a business expense payments that were nothing like the description on the signed expenses sheet, the person had spent thousands in three months on entertaining, so far we have traced just one of the people and asked if he was at the restaurant with our employee on the date in question, and the reply was that he wasn't even in the country and had not been entertained on any other date either. All the other entries are names we haven't heard of, and none are in the list of contacts on the PDA or mobile phone.

As we only 'suspect' it was not business entertaining, we have taken legal action and will pursue repayment through the authorities but if we are not reimbursed, can we legitimately declare it on next years P11d as a taxable benefit, and claim corporation tax relief on the 'emoluments'?

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04th Jul 2007 13:56

Thanks Rebecca - Entertainment company
we have a client that specialises in PR with a niche market is restaurants, as a result a large amount of money is spent in restaurants etc, is there any relief from the normal dissllowing rules as agenuine cost of sale.

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04th Jul 2007 20:27

I can't find anything
I have had a search of the HMRC Manuals and can't hold out much hope. I suspected as much.

The problem is there is an exception if the company owns and runs a restaurant - there is some scope to claim that free meals to critics and similar would be deductible, but this depends on the provision being out of the company's trade.

As you have a PR concern, the only services they could possibly provide free (out of its trade) would be PR which is no help! This exception is in Section 577(10) and the guidance on it is in BIM 45032. Those with clients who may be interested should note that this is a two part test - see the manual for a good explanation of the issue.

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05th Jul 2007 16:47

directors' entertaining
As mentioned earlier, a good and useful summary by Rebecca.
However, I think that entertaining of directors needs to be considered in a little more detail, when considering employee entertaining.
As it is not normally wholly and exclusively for the purpose of the trade, then it is disallowed.

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05th Jul 2007 20:05

Thanks Rebecca
if you cant there is hope for us mere mortals, or is it no hope


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By Anonymous
09th Jul 2007 14:18

Working Lunches
I never know whether working lunches / late night meals are should be treated as staff entertaining. To me, it seems reasonable for an employer to meet these costs if an employee is required to work through lunch / late for a specific purpose but I think that may be these should be treated as a benefit.

What if it is a working lunch with employees from a number of different locations / subsidiaries - does this make it business entertaining or subsistence but then what if the host company pays?

Any guidance on this would be helpful.

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By Anonymous
11th Jul 2007 13:20

Working lunches
My understanding is that expenditure on lunches where all employees are present, probably only feasible for small businesses, may be allowable by applying the "canteen" principles. In relation to working lunches, eg where sandwiches are brought in and work continues, is it strictly correct to disallow the deduction and create a BIK? Aren't there any concessions or the like available?

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By cfield
13th Dec 2010 01:15

Leaving gifts

Coming to this a bit late but only just spotted it on the internet. Like many other accountants I suspect, nothing causes me more headaches and grief with clients than entertaining, especially those in the travel industry. One of the biggest grey areas is trivial benefits, as this is not precisely defined by HMRC and you have to play it by ear a bit. We all know Christmas turkeys are exempt and tea/coffee gets by too (unless taken to excess) but what about leaving gifts, birthday cards/flowers, appraisal lunches, etc? I tend to operate a materiality limit of £50 but wish I knew what the proper rules are. Unfortunately most tax offices seem to operate their own informal rules. One lucky employee got a £400 SLR camera from her boss when she left. He was aghast when I said it was a benefit. Too late to put it on her P11D though as it wasn't picked up until months later. What made it worse is that she came back after a few months. He didn't ask for the camera back though! "Only you would think of that", he said to me.


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