Is client entertainment tax deductible?

Entertaining clients and customers, whether as a networking opportunity, a thank you for business or an incentive to attract it, has always been an important part of most companies’ marketing budgets. Golf days, dinners, and tickets to events are all commonplace in the corporate entertainment calendar. Here, Craig Harman, a tax specialist at Perrys Chartered Accountants, provides advice on what you should know about client entertainment and tax.

If you’ve decided to allocate a section of your marketing budget to entertaining clients this year, you may be wondering whether you can claim back business entertainment expenses. The short answer is that the cost of business entertaining isn’t tax deductible, and you can’t recover VAT on expenditure. However, as is often the case, the rules are complicated and there are some circumstances in which you can reclaim VAT.

For example, if the entertainment event you hosted included your company’s employees, VAT can be reclaimed on the employee element of your costs. But beware – even here there are grey areas: if an employee acted as ‘host’ at the event, VAT cannot be reclaimed on that employee’s costs.

Is client entertainment an allowable deduction for corporation tax?

While client entertainment is not considered by HMRC to be an allowable expense, it is still advisable to pay for entertainment – for example, a dinner with a potential client – via your company’s business bank account. If you were to pay from your own pocket using a personal bank account, your tax liability overall is likely to be higher.

It’s important to note that any expenses you do process through your company must be genuine business costs, and that they must not be ‘excessive.’

You may be asking yourself ‘Is it worth entertaining business clients?’. This is a decision only you can make – in many cases the answer will depend on the nature of your business and the client base you wish to build up. While business entertaining may not attract any tax or VAT breaks, it can help to win new contracts and maintain good relationships with business associates. So for many business owners, this means that the initial outlay is a price well worth paying.