What is allowable for corporation tax? What attracts a benefit charge? When can VAT be claimed?

What is allowable for corporation tax? What attracts a benefit charge? When can VAT be claimed? A guide to ladder your way through the minefield of staff and client (business) entertainment.

Staff can be taken to include: employees, directors, self-employed contractors, ad-hoc helpers and members of the staff member’s family.

Corporation tax:

A general rule can be followed here; is the expense wholly and exclusively for the purposes of the trade. As a general rule, all staff entertainment and gifts are allowed for corporation tax. This is because it benefits the trade, as it boosts staff morale. All client entertainment is disallowed for corporation tax. Please note the £50 limit is not in force here, it is only dependent on the nature of the expense. Different rules are in place for Directors. There is an annual cap of £300 and anything above this is disallowed. If staff and Directors share the same benefit and the Director is over the limit, then the costs should be apportioned into allowable and disallowable expenses.

Staff entertainment: allowable

Client entertainment: disallowable

Director entertainment: allowable, up to £300 per year

VAT:

The same rules can be followed as above for corporation tax. Input VAT can be claimed on staff benefits and welfare.

Staff entertainment: allowable, as long as non-employees are not present.

Client entertainment: disallowable.

However, if the client or customer is based outside the UK and not ordinarily carrying out business in the UK, then input VAT can be claimed. The expense has to be strictly and necessary for business and without being excessively expensive. Taking the client to a sporting event would clearly not be allowable, as one could have easily had the meeting at a simple restaurant of café (which would be allowable).

Director entertainment: allowable, up to £300 per year.

Taxable Benefit for staff:

Trivial benefits are exempt from any benefit charge as long as they meet the following rules:

· Does not exceed £50
· Is not cash
· Not contractual
· Not provided in recognition of particular services provided

If these rules are not met, then a benefit charge will arise. P

lease note this article only deals with entertainment expenses. There are many more which fall outside of this article, e.g. travel, subsistence, insurance, phones, cars etc. All companies should have an employee handbook available explaining all expenses and benefits. We can offer a bespoke handbook for a fee of £1,200+VAT.