29 Jul, 2021 04:08 PM
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Business Entertainment: VAT

Here you can find out how to account for VAT on the entertainment provided by your business.

According to a report, an average of £1.5 billion is spent on various events and corporate hospitality. In the UK, the size of the event industry itself is about 35%. With these major transactional movements, businesses in the UK need to understand the business entertainment sector and its tax imposition. 

Taj Accountants has come up with a simple guided solution on explaining how VAT on business entertainment works when providing corporate entertainment to businesses, clients, employees, and stakeholders.

What is Business Entertainment?

To fully understand the Business Entertainment sector, we need to first define what entertainment stands for. Entertainment is defined as the hospitality of any kind, the following are examples:

  • provision of food and drink
  • provision of accommodation, such as in hotels
  • entry to sporting events and facilities
  • provision of theatre and concert tickets
  • entry to clubs and nightclubs
  • use of capital assets such as yachts and aircraft for the purpose of entertaining
  • Also includes, free Vouchers, samples, and business gifts

In the corporate world, Entertainment is indifferent from its real meaning as it is an act of hospitality offered by a business entity to its clients, stakeholders, or employees for the very purpose of entertainment and goodwill gesture. Business entertainment can be anything related to a social activity or an invitation to a dinner or a sporting event and by organizing such events, businesses reinforce their company’s brand vision, image, and values, while leaving their guests with a memorable experience to cherish. 

Does Business Entertainment Have Tax Relief?

Businesses in the UK might be unaware of how some of them have been providing entertainment to their customers and could have claimed tax reliefs in return. They might also be oblivious about the corporation tax treatment of such events. Accountants in London can help you figure out your claimable tax relief for you. 

Even if a company claims to comprehend the corporation tax relief on business entertainment, there are a number of problems that make it difficult for them to actually claim it. Multiple restrictions and rules make determining permitted expenses for a hospitality business even more difficult. In some cases, the claimed expenses may imply that your customers or clients have received "benefits in kind," which makes them liable to pay the taxes of those benefits. Hence, depending on the type of business entertainment you intend to provide, consulting your small business accountants can assist you to uncover other problems.

Types of Business Entertainment

There are various sorts of entertainment that you may use to make your employees and non-employees feel welcome and open up new business chances. The most prevalent practice in the business sector is to entertain employees and non-employees through corporate events and dinners, however, this is not the only sort of entertainment. HMRC, on the other hand, has some basic procedures for distinguishing between employees and non-employees that may differ from popular belief.

In its judgment, HMRC is very clear about who should be regarded as employees and who should be excluded from business entertainment. You can claim input tax on the following employees:

  • Your employee, who is currently on the company's payroll, or one of the company's directors or partners
  • Self-employed individuals that you treat with the same subsistence as your employees (subsistence expense only).
  • Helpers or caretakers who are regarded as critical to the event's success.

On the contrary, a non-employee includes:

  • retired pensioner, 
  • an employee who has left the job or has been terminated, 
  • job applicants, or interviewees. 

Furthermore, a person who owns stock in your company but is not an employee is referred to as a non-employee and can be treated as a customer or client.

VAT on Business Entertainment Expenses

Entertainment that is solely provided to serve the purpose of amusement may not be considered; however, if the entertainment was provided solely for the sake of business, HMRC may consider the costs to be permissible. HMRC has distinct considerations for VAT on corporate entertainment charges, and may not give considerable tax relief unless there are a few exceptional circumstances.

Exceptional cases exempted for disallowable expenses:

  • Sporting Bodies and Airlines
  • Goods and Services
  • Entertaining Clients or Overseas Customers

VAT on Staff Parties

In the United Kingdom, most companies hold an annual Christmas party or dinner to reward their employees. If the cost per head is less than £150, it can be a tax-free advantage for the business. However, there are few conditions that apply to such tax relief:

  1. The event is open to all members of the staff, not only directors and partners. 
  2. The entire event costs, including food and beverage, lodging, and travel (including VAT), should be less than or equal to £150 per person. If the costs exceed the price limit or a few employees are left out, you will be subject to input tax consequences.

Other Tax Implications on Staff Parties

  • Mixed Gathering
  • Staff Acting as Hosts
  • Director or Partners as the Staff

Contact Taj Accountants

As your reliable Small Accountants in East London, Taj Accountants offers you a wide range of accounting and taxation advice to sole traders, limited companies, or partnerships. Our team of expert accountants helps our small business clients solve issues, create value, maximize growth and improve business performance. Whether you are looking for manageable account support, or advice regarding the best possible VAT-related services, can always rely on Taj Accountants.

DISCLAIMER: The purpose of the blog is to provide information and insight regarding the situation. The readers must contact experts before making any decisions based on the information. We highly appreciate you contacting Taj Accountants for further assistance.