staff entertaining allowance

Beginner’s Guide on Staff and Client Entertainment Expenses

Entertaining clients or staff has been proved to bring a number of advantages. For example, giving rewards to employees for their hard work increases their morale and builds loyalty. On the other hand, spending time with clients helps to make better relationships with clients. Therefore, it is essential to know what expenses qualify as entertainment expenses and how much clients and staff entertaining allowance is claimable. We will cover the staff entertaining allowance in this blog. So, let’s start.


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What Expenses Qualify as Entertainment Expenses?

As per HM Revenue & Customs, entertainment can include eating, drinking, and other facilities like tickets or accommodation for an event. The following are the different entertainment types:

Different entertainment types


1) Business Entertainment of Clients

This includes the discussion of a specific business project or establishment or maintenance of a business connection.

2) ‘Non-Business Entertainment’ of Clients

This includes entertaining an acquaintance of business for social purposes.

So, what to pay and what to claim depends on the entertainment types. Who arranges it and who attends it. Client and staff entertainment also has its rules that must be considered.


Client Entertainment

The expenditures incurred when hosting potential clients, existing clients, or any other who is not an employee are covered in client or business entertaining expenses. According to HM Revenue & Customs, it must be offered free to be considered as client entertainment. In most cases, the entertainment costs are not tax-deductible, and the Value Added Tax on expenses is also not recoverable. However, you can still make client entertaining more tax efficient.


Staff Entertainment

First, it is essential to know what actually defines an employee from an HM Revenue & Customs perspective. Basically, the individual in question has to be on the payroll of your business and must be paid a salary. This implies that you can not claim tax relief for interviewees, former employees, shareholders, or subcontractors who do not actually operate in the business.

In addition to that, you are also not considered as an employee in case you are a self-employed person, partnership, or a partner in a Limited liability partnership because there is no clear distinction between you and the company.


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What is the Tax Relief for Staff Entertainment?

Staff entertainment is tax-deductible and also considered to be an allowable business expenditure. In this context, allowable expenses include the costs of entertaining, eating, drinking, transportation, venue hire, and accommodation. 

The Value Added Tax incurred on allowable staff entertaining costs can also be recovered by VAT-registered companies. There is no limit to the claimable amount.

Remember that an employee is responsible for paying the income tax if he gets any benefit from his employer. It also includes the expenses incurred in entertaining staff. 

Within the United Kingdom, on an annual staff function like a summer gathering or a Christmas party, the expenses of up to £150 can be excluded from both National Insurance of employees and charges of Income-tax.


Quick Sum Up

Now that you are aware of staff entertaining allowance. We will sum up our discussion by saying that an entertaining allowance proves to be beneficial to the employer. However, there are some conditions that must be fulfilled in order to claim and get tax relief on these expenses. The tax relief claiming process is complicated, so we recommend you ask a professional to handle this. 


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Disclaimer: This article intends to provide general information based on staff entertaining allowance.


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